Small Business Insurance Overview
Investigating Small Business Insurance can be a very complex and confusing process. If you as a small business owner are able to enter this process by having a clear 30,000 foot view of what type of insurance policies you might need, this process can be simple and clear. There are four common risk management areas that need to be addressed that are germane to all businesses. Most businesses build their small business insurance portfolio by buying insurance policies. A better approach is to analyze the four broad and common risk management areas and then see which insurance policies are best to provide the protection that you desire.
The four broad risk exposures that every business faces are that of:
- liability loss exposures
- income loss exposures
- property loss exposures
- people loss exposures
Liability loss exposures. These types of claims and losses typically come from negligent accidents. Some accidents can be caused by civil wrongs and/or criminal wrongs. Some accidents can be negligent and some accidents can be intentional. Having the correct insurance policy in place is important to ensure that you have the protection that you desire. The most common type of insurance policies for these types of exposures, mainly negligent liability losses, are:
General liability insurance, professional liability insurance, E. & O. insurance, directors and officers insurance, employers liability insurance, employment practices liability insurance, and automobile liability insurance.
Income loss exposures. These types of claims and losses normally affect your financial cash flow. These can be claims or losses to your income from loss of rents, loss of tuition, loss of sales, etc. due to a covered loss. The income loss can be both to the company as well as the individual. An individual could suffer income loss due to a disability, sickness, loss of employment and/or injury. The most common type of insurance policies for these types of exposures to loss of income are:
Workers compensation insurance, business interruption insurance, loss of income insurance, disability insurance, life insurance, and loss of income extra expense.
Property loss exposures. These kinds of claims and losses are usually the most tangible of all claims. These are claims arising from losses to your buildings, appurtenant structures, automobiles, inventory, raw materials, contractor’s tools and equipment, personal contents, mobile equipment, leased equipment, furniture and fixtures, intellectual property, Accounts Receivable, Accounts Payable, to name a few. The most common type of insurance policies for these types of exposures to loss of property is:
Business property insurance, automobile insurance, fire insurance policy, inland marine policy, ocean marine policy, contractor’s tools and equipment, intellectual property policy, personal effects policy, property of others, to name a few.
People loss exposures. These types of claims and losses usually arise from injuries to employees, volunteers, and third parties. Employees can be injured on the job becomes sick on the job and can become disabled or die on the job. The same type of exposures can also affect a non-employees and volunteers in the same manner. The most common type of insurance policies for these types of exposures to loss of people are:
workers compensation insurance, disability insurance, medical insurance, group insurance, Medicare supplemental insurance, long-term care insurance, life insurance, dental insurance chiropractic insurance, prescription drug plans, section 125 cafeteria plans to name a few.
As one can quickly see, small business insurance can be very complex and confusing if the layperson is trying to tackle this problem by sorting out the myriad of insurance policies that are available in the marketplace. So before obtaining a small business insurance quote, first analyse the four broad risk management categories of liability losses, income losses, property losses, and people losses will give you a clearer picture of how to design your insurance program. Failing to do so normally leads to you purchasing more insurance policies then you need. Having a trusted risk management advisor in this process can help you navigate these deep waters safely.
For additional resources on the topic of insurance for small businesses the Small Business Administration has many good resources.