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Business
Insurance FAQ |
Does
my small business need insurance?
Yes. Not having insurance - or not having the right
kind of coverage - can put your business at risk.
Without adequate insurance, a fire, theft, employee
accident, or lawsuit could destroy your business and
might even consume your personal assets.
In fact, your business may be legally required to have
certain kinds of insurance. For example, if you have
employees, your state may mandate that you carry
workers' compensation coverage, or you may have to
prove you have specific types of coverage in order to
get a state or local business license. In addition,
people such as landlords or suppliers may require you
to have coverage as part of a contract. |
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What
can I do if I can't afford business insurance?
According to the Insurance Information Institute,
about 40 percent of small business owners have no
insurance at all because they claim they are cash
constrained. The uninsured may be buying into a common
misconception - that small business insurance is
expensive. The truth is that not having insurance can
cost a lot more than annual premiums - you can end up
losing your livelihood to a disaster.
Packaged insurance solutions - such as business
owner's policies (BOPs) - give you coverage for basic
property and casualty risks at a reasonable cost. If
the cost of this kind of coverage is still beyond your
means, you might want to look into other methods of
reducing the expense. For example, a higher deductible
will usually lower your premiums. You may find
yourself paying higher out-of-pocket costs should you
need to make a claim, but you will be protected when
disaster strikes. |
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What
kind of deductibles should I carry?
For many business insurance policies, the minimum
deductible available is $250 per occurrence. Higher
deductibles will reduce the cost of your insurance by
lowering your premiums. When evaluating higher
deductibles, it is a good idea to carefully consider
your circumstances. Ask your insurance provider for
quotes for various deductibles, and analyze them
carefully before making a decision. Most liability
policies do not have deductibles, although some do for
property damage. |
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What
can I do to keep my insurance costs under control?
The surest way to control your insurance costs is to
use what insurance professionals refer to as
"risk management." Using risk management
methods, you determine the probability of your
business facing a loss, and consider whether or not it
needs coverage for that loss. This is a process that
large companies use, and one that small businesses can
practice to ensure they don't over or under-buy
insurance.
Risk management is basically a four-step process:
| 1. |
Identify
sources of potential losses. Examples would
include casualty and theft losses, fraud and
embezzlement, injury claims, etc.
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| 2. |
Evaluate
the financial risk posed by each exposure. How
frequently might the event occur? How severe
would its impact be?
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| 3. |
Determine
how to treat the risk. Can it be eliminated or
controlled? Can you transfer the risk to your
insurance company?
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| 4. |
Monitor
the results of your analysis. You may need to
review steps 1-3 annually.
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By using risk management to avoid or reduce losses,
you can lower the number of insurance claims your
business may make. This, in turn, lowers your coverage
rates, which are based on your claim history. You may
also find that your out-of-pocket expenses for
uninsured claims are lower. |
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How
often should I review my insurance policies?
A small business' insurance needs change frequently.
You don't want to find yourself suddenly underinsured,
nor do you want to pay more for insurance than
necessary. Take stock of your policies and premiums at
least annually, and, if possible, twice a year, to
ensure they still meet your needs. Also, re-evaluate
your coverage whenever your circumstances change.
Don't feel as though you have to stick with your
current provider. One way to save money is to shop
around to see what rates and services are being
offered by competitors. Ask for bids from at least
three providers to find the most cost-effective
policy. |
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Do
I need liability insurance if my business is
incorporated?
While certain business structures such as
incorporation are designed to protect owners' personal
assets in cases of liability, they do not exempt
companies from insurance needs. In fact, incorporation
typically does not protect you personally from
professional malpractice and other liabilities.
Although incorporation makes your company a separate
legal entity, an attorney could find ways to strip
away your corporate shield and make you personally
liable in the event of a lawsuit. Not only would your
business be at risk by not having insurance, but your
life savings could also be devastated. |
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Do
I need workers' compensation coverage?
In general, you need to carry workers' compensation
insurance if your company has employees. Without
coverage, you may be sued by an injured worker for
medical and disability costs, plus damages. Workers'
comp requirements vary from state to state. Each state
has its own workers' comp laws, as well as its own
administrative and legal structure for handling claims
and disputes. Contact your state's insurance
commissioner's office to find out what the
requirements are where you are located.
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