A survey conducted in 2010 reveals that over 90% of entrepreneurs are confident in the insurance cover that they take. The biggest fear for most entrepreneurs is that the insurer will disappear once they claim coverage. What is the common mistake when it comes to business insurance? How should you budget for insurance as a small business? How should you optimize coverage while minimizing cost? This article will answer these questions in detail.
Optimizing Coverage While Minimizing Cost
1. Prioritize Comprehensive Covers
It is important to take an insurance cover to protect against risks that will likely cripple your business. Experts recommend that you take a cover against:
- Business and property interruption
- Workers compensation
- General liability
- Automobile coverage for businesses with vehicles
It would be costly if you took each of these covers individually. Instead, experts recommend that you take a comprehensive cover to cater to all these liabilities. The items that the insurance coverage covers the better.
2. Compare The Cost From Various Insurers
Note that the cost for each cover varies depending on the insurance company. Some are cheaper than others. However, cheaper does not necessarily translate to cost-effectiveness. Sometimes, a cheaper alternative means that some aspects are not covered.
It is important to read the fine print on what some insurance covers offer. For persons who already have a cover, you can review the contract terms with the insurer.
How Much Should You Spend on Insurance?
Often at times, business owners do not think of acquiring insurance coverage until something disastrous happens. This then becomes the turning point. Averagely, it is recommended that about 25 percent of the gross income should be dedicated to insurance cover.
However, this percentile is variable. Some high-risk businesses like those in the construction industry should contribute a higher percentage because of the higher risks associated with the work.
How to Budget For Your Business Insurance?
Small businesses often don't have enough capital to operate and take insurance cover. Note that the cost of a cover depends on the type of cover that you take. The decision on which cover to take depends on the type of industry you are in, the risks associated with your daily operations, and the managerial structure of your business. Some of the critical aspects that you should ensure your comprehensive cover has are:
- Employment practice liability
- Fiduciary liability and bond
- Professional liability coverages
Currently, the business world demands entrepreneurs to take a cover against:
- Direct and officer coverage
- Cybercrime coverage
- Business continuation
As a small business owner, your main priorities when taking a cover are your clients and your employees. For your clients, your main concern should be liability cover. The liability covers ensuring that the client is protected from harm to themselves or their property.
As for employees, your primary concern should be their health coverage while they are in the workplace. The employment practice liability is significant for high-risk companies like machinery businesses, manufacturing companies, and construction.
What Are The Common Mistakes Small Business Owners Make When Budgeting For an Insurance Cover?
1. Taking a Personal Insurance Cover For Business
A personal insurance cover only protects the owner of the cover. It does not cover the business or any transactions of the company. Most business owners do not know that a personal insurance cover does not necessarily translate to a business cover. Therefore, if you wish for your enterprise to be covered, you need to seek out an insurance policy for it.
2. Selecting the Wrong Agent and Cover
Different companies operate differently thus are exposed to different risks. As a small business owner, it is your responsibility to assess which risks pose the greatest threat to your business. Once the risk is identified, take an insurance policy to cover the risk.
A common mistake experienced by most business owners is taking the wrong cover or partnering with the wrong agent. Before signing the insurance contract, assess the terms and conditions. It would be prudent to seek legal advice if you do not understand a term or a phrase in the contract. Alternatively, you can ask all the questions to the insurer. Do your research and take all the time you need before you sign the contract.
3. Not Reviewing Your Insurance Policy
Policies like most contracts have an expiry date. When budgeting to renew a policy, you have the opportunity to review the terms of the agreement. Revise the unclear areas, or adjust according to the current insurance needs.
Conclusively, an insurance cover can be the make or break of a company. Choosing the right insurer and cover indemnifies you of the liability associated with the risk and protects your business from potential closure. Choose a cover that is right for you.
