Do you know what types of insurance your small business needs?
SCORE talked to Peter Hedberg, Assistant Vice President of Technology and Privacy at Hiscox, who answered questions about the types of insurance small business owners need and the best way to get coverage in our latest “Been There, Done That” podcast.
Q: What are some of the options for commercial, or business, insurance?
A: In most cases, you can buy a business owner's policy, or BOP, which is pretty comprehensive. I liken it to the Happy Meal of insurance because you get several different lines of coverage in one product. You also can get auto liability, general liability, personal property coverage and the like.
Q: In addition to insuring your business against things like slip-and-fall accidents, what are some other types of insurance small business owners may not think of?
A: A big one that gets overlooked is professional liability or errors and omissions coverage, also referred to as E&O. Professional liability insurance can protect you against claims that you incorrectly provided a contracted service or that the work you provided was faulty in some way.
Small business owners who regularly give advice to clients or provide a professional service should seriously consider getting professional liability insurance. Examples of businesses that should carry this type of insurance include graphic designers, hair stylists, and interior decorators, among many others. Again, professional liability insurance protects your business if you are sued for negligently performing your services.
Keep in mind, whether you did something wrong or not, you could be accused of doing something wrong--in which case, you will need to hire an attorney. A professional liability policy will cover the cost of your legal defense, subject to your deductible and policy limits. Traditionally, business owner’s policies don't include professional liability.
Q: Is there a difference in the kind of insurance you need based on your corporate organization—in other words, if you're a sole proprietor, a partnership or a corporation?
A: Many people assume that setting up their business as an LLC will protect them from any exposure if a claim is made. However, there are a variety of circumstances under which an owner can be held liable.
If you're a sole proprietor, they can go after your house and business assets. General liability insurance, professional liability insurance, and business owner’s policies are even more important if you’re running this type of business.
Q: What's the best way for a small business owner to buy insurance?
A: The option that is quickly becoming popular is buying directly from an insurance company online. You can visit the company’s website or call them, and they will give you a quote. This method is becoming popular because you're working directly with that insurance company or its licensed call center advisors.
Secondly, you can use an independent agent or broker. That's been the traditional route. The independent agent or broker has access to several different insurance companies with different rates and application structures. The independent producer works with you to gather all your information and will provide it to each company. This gives you a lot of latitude because you're able to see quotes from several different insurance companies.
The third option is to go through an exclusive agent. An exclusive agent works for one insurance company. They can make the transaction very simple because they only ask one set of questions, but you don't have a lot of choices because they work with a single company.
Q: Will I benefit as a small business if I have all my policies with one company?
A: Perhaps, as a lot of insurance companies write their insurance policies to work together and some offer multi-policy discounts. If you have multiple losses that affect different lines of coverage, it's a lot easier to have that harmonized with one insurance company.
The contents of this article and any referenced material do not constitute legal, business or insurance advice, not should they be relied upon, in connection with the needs of any specific person or individual business.