Business insurance for small business owners
My firm, Lasting Wealth Principles, does not sell any insurance products, but I still believe that having the proper business insurance is particularly important for small business owners. Deciding on the type and amount of business insurance to purchase depends on an individual’s specific financial circumstances. The purpose of business insurance is to protect small business owners from financial losses resulting from unforeseen events such as property damage and liability claims. Unfortunately, insurance is an area that is often overlooked and/or not addressed adequately within financial planning. As I go through the insurance planning part of my financial planning process with small business owner clients, I review their current business insurance and evaluate whether it is adequate for their situation and if choosing another option could be beneficial. This list is not exhaustive, but I provide three business insurance options for small business owners that include General Liability Insurance, Professional Liability Insurance, and Property Insurance. Depending on the circumstances, other business insurance options should also be considered for small business owners, but I am focusing on these three options below. Additionally, I provide some items to consider when deciding on what and how much business insurance to purchase.
General Liability Insurance
General liability insurance protects small business owners from several types of claims, which include bodily injury, property damage, and advertising injury. I provide brief descriptions of these types of claims below. Financial obligations such as legal defense fees, settlements, and medical expenses can arise from these types of claims filed against small business owners so it is extremely important to have adequate protection in place, which will help maintain financial stability if an unforeseen event occurs.
Bodily Injury: A third party sustains bodily harm on a small business owner’s premises or because of the business’s operations.
Property Damage: Business activities of a small business owner causing damage to someone else's property.
Advertising Injury: Slander, libel, copyright infringement, or misleading advertising by a small business owner.
Professional Liability Insurance
Professional liability insurance protects small business owners from claims related to mistakes (e.g., negligence, errors, inadequate work) being made in the professional services they have provided to clients. This type of insurance is also called errors and omissions (E&O) insurance. Professional liability insurance is unlike general liability insurance, which primarily covers bodily injury and property damage. On the other hand, professional liability insurance provides financial protection from alleged mistakes or failures to meet professional standards. Small business owners who provide professional services and offer advice to clients should consider having professional liability coverage as it can be a safeguard to protect the business’s financial stability in this type of unexpected circumstance. Professional liability insurance can protect against some of the claims noted below.
Errors and Omissions: Claims against a small business owner alleging professional negligence, errors, or omissions in the performance of services.
Not delivering agreed upon services: Failure of a small business owner to deliver contractual services and meet client expectations.
Negligent Advice: A client incurring monetary loss because of a small business owner’s negligent advice, recommendations, or representations.
Property Insurance
Property insurance protects small business owners from financial losses incurred due to the damage or destruction to their physical assets (e.g., buildings, equipment, inventory). Having this financial protection provides compensation to small business owners for the repair or replacement costs for property damaged or destroyed by events such as fire, accidents, theft, and vandalism. With physical assets being repaired and/or replaced in a timely manner, small business owners are assured that their business operations will continue without delay, which helps maintain revenue and sustainability going forward. Some items covered by property insurance are noted below.
Buildings: Coverage for a small business owner’s business premises, which includes its building itself and fixtures.
Business Personal Property: Coverage of business assets (e.g., inventory, furniture, computer, machinery, phone) used by a small business owner in their daily operations.
Items to consider when deciding on business insurance
It is particularly important to do extensive research on potential insurance providers and compare them by evaluating each of their coverage options and quotes. Small business owners can also check customer satisfaction ratings and the insurance company’s financial security when doing their evaluation of different insurance providers. Once a small business owner decides on using a specific insurance provider and is offered an insurance policy, it should be thoroughly reviewed. Some items to consider include the business insurance policy’s terms, exclusions, coverage limits, and deductibles. Even further, it can also be beneficial to consult with a fee-only financial planner (i.e., a financial professional that does not sell insurance products to clients for commission, which means their fees are not tied to the sale of a specific product) who can provide unbiased and objective advice on what business insurance options would be most beneficial for a small business owner’s specific financial situation.