Money-saving tips for choosing small business insurance

The margin between success and failure for small businesses is often slim. While many SMEs manage to find success through dynamic sales and smart budgeting, the sad truth is that an unexpected event can threaten your company’s survival despite your best efforts.

However, while small business owners can do little to prevent the unexpected, it’s possible to mitigate the impact on your business. Insurance can help you prepare for the unknown and secure critical financial coverage during uncertainty.

This article discusses all you should know about small business insurance, including how it offers protection and the available insurance types. Further, if you’ve considered the merits of insurance coverage but are hesitant due to the cost burden, we also share tips on how to find great insurance products at cost-effective rates.

What is small business insurance?

Small business insurance provides a safety net that protects your SME against disaster.

A small business insurance policy safeguards the assets, property, and income of a small business. It provides insurance coverage for a range of uncertainties that may negatively affect various aspects of your business, including sales, operations, or even the value of your brand.

For instance, professional liability insurance can protect your business from the damaging impact of work errors. It will help you indemnify aggrieved clients, giving you a platform to restore their confidence in your company.

A small business Insurance policy can also protect your business against adverse events like theft, fire, disaster, work hazards, or damage from errors and omissions. It can provide much-needed financial aid if your business cannot function because of unexpected events like the COVID-19 pandemic.

Why do small businesses need insurance?

Insurance is a must-have for companies of all sizes, not just small businesses, because of the protection it offers. Conducting business in today’s world means taking on significant risk, and your business needs coverage against that risk to prevent business failure.

While some risks are within your power, others like damage from fire or theft are things you can’t control. Procuring insurance gives your business a buffer against those risks so you can continue to operate even if the unexpected occurs. Apart from these, insurance is important because it helps:

• Mitigate disaster: You could lose a critical piece of equipment or a key worker may suffer an injury. Insurance helps you bounce back by giving you financial help when you most need it.
• Anticipate litigation: Even when you run your business carefully, mistakes can sometimes happen. If your company is at fault, insurance can help pay whatever damages you owe.
• Satisfy customers: Big-spending customers typically insist on doing business with only vendors that carry insurance. If you’re not insured, you’re unlikely to attract their business.

Insurance coverage is also industry-specific and needs-specific, so there is an opportunity to choose the exact policy that works for you. For instance, transport companies may seek commercial auto insurance. Likewise, home-based businesses may procure commercial property insurance in addition to their homeowner’s policy.

Types of small business insurance

Small businesses can opt for a business owner's policy (BOP) that mainly covers general liability, business interruption, and business property. However, these have a coverage limit — the highest sum the insurer will pay for a valid claim. Accordingly, you may be required to pay out-of-pocket depending on the extent of the damage not covered by the insurer.

But there are other types of insurance that may offer better coverage. And if you prefer to purchase insurance for specific business situations, there are several products you may consider. Here are the common types of small business insurance:

1. General Liability Insurance

General liability insurance is also called commercial general liability insurance. It costs an average of $30 per month to $360 per year and caters to everyday business risks like customer property damage, advertising injury, and personal injury.² General liability insurance is very important for small businesses considering the early stage of their growth and the delicacy of their survival. This insurance would cover lawsuits resulting from a newsletter or advertisement that unintentionally harms a competitor’s reputation.

It also covers a staff member accidentally tripping and getting hurt and a customer getting hurt after using the business’s products. Small businesses with an LLC still have to get general liability insurance to avoid paying out-of-pocket for these damages. However, with general liability insurance, the extent of coverage the business will receive from the insurer depends on the business's coverage limits.

2. Professional Liability Insurance

Professional liability refers to damage that results from a person’s work. This damage is directly related to the business and is covered by your professional liability insurance policy. Professional liability insurance provides coverage for professionals and businesses to protect them against claims of negligence from their clients or customers.

In other words, professional liability shields businesses from damages that may arise as a result of professional negligence on their part. Professional liability insurance for a small business typically costs around $60 per month and $720 per year.²

3. Worker’s Compensation Insurance

Worker’s compensation is mandatory in many states and is required of businesses, including small businesses. Work hazards happen all the time. In addition to repairs, maintenance, and treatments, the affected employees will have to be compensated. Small businesses may not have the budget to cover this, but worker’s compensation insurance will go a long way to ensure that these businesses meet up with state-mandated worker’s compensation benefits.

Worker’s compensation insurance premiums are based on the payroll size of the business. The cost is typically calculated as $1 for every $100 in business payroll and can rack up to $70 per month or $840 per year.²

4. Business Interruption Insurance

A business interruption insurance policy replaces the money lost while operations are paused or temporarily delayed due to damage such as a fire or natural disaster. Businesses are operated on a going-concern basis, such that there will be no end in sight. Given this, business owners are encouraged to have business interruption insurance to help them resume operations after an unfortunate event.

Business interruption insurance covers loan payments, taxes, employee wages, other fixed costs, and profits (profits that would have been earned assuming the unfortunate event never occurred). Business interruption insurance is not offered alone but rather as an add-on to a package. The monthly cost of business interruption insurance can range from $40 to $130.²

5. Business Property Insurance

Business property insurance is specific insurance for small businesses that grant cover to the direct properties of the business in the event of damage. It helps minimize the financial impact of a hazard or other untoward event.

This covers more than just the building of the business; it also covers expensive computer equipment and other properties of the business that will be costly to replace. Business property insurance costs small businesses as little as $63 per month.²

6. Cyber Liability Insurance

Cyber liability insurance covers internet-based risks and protects small businesses if there is a system hack or data breach that affects a customer’s information or data. Cyber liability costs around $123 per month and $1,485 per year. However, some small businesses can pay as little as $650 per year depending on their risk exposure and industry.²

Money-saving tips for choosing small business insurance

The cost of an insurance policy is more than the monthly premium. You should consider other conditions, such as the deductible and the coverage limit.

The deductible is the amount that the insurance company will require the business to pay out of pocket, and the coverage limit is the maximum amount the insurance company will pay for the damage. These factors influence the total cost that the company would bear in the event of an insured loss, and thus the true cost of the insurance policy.

Insurance is a necessary expense in any business, and it should be approached with caution and attention. Businesses should examine the coverage in addition to cost savings. A less expensive insurance policy does not always represent a better choice.

Small businesses, however, need to be careful to strike a balance between being over-insured and under-insured. The best approach to reducing the cost of small company insurance is to do that. Yes, you need coverage, but you shouldn't have to sacrifice your insurance coverage to reduce expenses.

Limiting your insurance coverage is not the best method to save money, and we have listed some alternatives.

1. Analyze your risks. Know what you need

The aim of small business insurance is mainly to provide a hedge against risks. However, a single insurance policy won’t cover all of the risks your business is exposed to. While your small business does not have the budget to buy insurance for every risk it’s exposed to, identifying the major risks and buying insurance for them would provide maximum coverage.

You would save money because you would have coverage for major risks and would not have to pay for insurance that you would not likely need.

2. Explore discount opportunities

Small businesses can save more money on their small business insurance when they get discounts. Discounts mostly result from buying several policies. Insurance providers also offer discounts on small business insurance based on package and season.

Small business owners should explore as many insurance providers as possible and also compare their offerings and their pricing. Insurance providers may also offer credits that’ll help small businesses save money on the cost of their premiums. Ask about these and related options.

3. Adjust your payment method

Paying for the premium upfront can reduce the total cost of the premium. Small business owners can pay for their premiums yearly instead of monthly to get discounts on bulk payments.

4. Choose your insurance carrier carefully

Make appropriate research on the insurance carrier to assess their liquidity or at least their creditworthiness. As much as you want to save on premiums and save money for your business, you don’t want to do that at the expense of an unpaid claim.

5. Opt for bundled policies and add-ons

Bundled policies like the business owner’s policy provide 3-in-1 insurance and are usually offered at a discount. A standard business owner’s policy covers general liability, professional liability, and business property. Insurance companies also offer discounts on any additional add-ons as these three don’t fully cover your small business.

6. Compare and understand policies

Some policies come with deductibles and lower policy limits. While this can reduce your insurance premium, it also affects the extent of your coverage. Some business owners choose insurance with a higher deductible and lower policy limits. They do this to reduce their monthly premiums. However, to gain long-term benefits from this, small businesses should also consider their cash flow and risk tolerance.

7. Review and update coverage yearly

Insurance needs may change by the year. This makes it necessary for businesses to review and update their coverage. For example, if your business moves online, you’ll need to consider cyber liability insurance to cover internet-based risks such as client data breaches or system hacking.

8. Ensure workplace safety

Insurance premiums increase based on the risks that the business is exposed to. By taking active steps to ensure workplace safety, small businesses can reduce the risks that they are exposed to and thus reduce their monthly premium.

9. Maintain good credit

Credit scores can affect the price of insurance. A higher credit score can help you get discounts on your premium. However, your credit score may not always factor into commercial insurance policies.

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