More than 10 million Americans are self-employed and love their freedom to work as much or as little as they please. One of the significant challenges facing self-employed people is the constant effort to carry adequate business insurance coverage. The right combination of coverage can be constructed with sufficient comparison shopping and advice from an experienced insurance professional. Various major categories of insurance must be purchased to protect against significant loss.
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Business Groups
One advantage for large companies is the number of business insurance pools that already exist for their benefit. Insurance companies cater to large customers because each one brings an entire pool with them in the large policies that are underwritten to cover their needs. Small businesses have started to demand equal opportunities to save money on insurance.
Two associations exist for self-employed people to join to gain the buying leverage offered to the big guys:
- The National Federation of Independent Business (NFIB) – Savings programs and insurance resources are offered to the members.
- National Association for the Self-Employed (NASE) – Insurance plans of various types have been set up for self-employed workers.
Assessment of Insurance Need
Most self-employed professionals fall within the bounds of an existing industry. This is important because of the existing information that has been learned from other businesses. Insurance agents have extensive knowledge about the components that must be present in a Business Owner’s Policy, or BOP, to cover these categories of businesses, which are the most popular:
- Construction
- Consultants and freelancers
- Professional or technical services
- Retail
- Specialized services, such as daycare or music instructors.
Each of these businesses will have different levels of property and liability coverage needs. Insurance companies will place certain requirements on home businesses to reduce the risk of loss. Any attempt to reduce the cost of insurance by providing false information will be categorized as fraud, which can result in cancellation of coverage, denial of claims and, in some cases, legal action.
Health Insurance
One approach to finding affordable health insurance is to seek online quotes from reputable insurers. Some younger professionals will choose to carry a high-deductible policy that is meant to protect against the high costs of severe illness. If this approach is chosen, a savings account with an amount equal to the deductible must be maintained to prevent financial hardship if an accident or illness occurs.
Disability Insurance
The family of a self-employed individual depends on their ability to work. If an injury or illness occurs which renders the primary wage-earner disabled, the insurance policy can care for the needs of the family. Some policies have a six-month waiting period after the date of the incident before the payments begin.
One of the reasons for an extended waiting period is to lower the deductible on the policy. A savings account, equivalent to the same number of months of household expenses, should be maintained to sustain the family until the disability payments start.
Errors and Omissions Insurance
Professionals, such as consultants, accountants and attorneys, make their living by providing valuable advice to clients. If a client decides that the professional advice received was incomplete or was not provided at all, a lawsuit can result.
Most people who are new to their fields will be asked to pay very high premiums until they have more years of experience in business. Professional associations have information about the best sources of this type of insurance. Each of the professional disciplines will pay different premiums for a policy that will pay for the court award and the legal fees necessary to defend the case.
Personal vs. Business Auto Insurance
Some self-employed people make the mistake of using their personal vehicle for business purposes. If an accident occurs, the insurance company can, and most likely will deny the claim. Business activity carries significant risks that are factored into the insurance premiums charged to pools of policyholders with similar risk levels.
All business owners should ask an experienced auto insurance agent about their need for a business auto policy. Some professionals who conduct their business at a client’s place of business might be adequately covered with the personal auto policy. Contractors with specialty equipment on the vehicle will be required to purchase the right type of business auto insurance coverage under the right “symbol.”
Home-Based Business and Homeowner’s Insurance
An important fact about homeowner’s liability insurance is that it does not offer any coverage if someone is injured while on the property to conduct business with the home-based business owner. Insurance adjusters ask many probing questions to determine why a claim was filed and exactly what happened. Their job is to insure that claims are paid fairly according to the terms of the policy. Business activity at a private residence is not insured under the standard homeowner’s policy.
There are two endorsements that can be added to the homeowner’s insurance policy to mitigate the risk of conducting business on private residential property.
- Business pursuits endorsement – Adds additional coverage for the person who works from home at times, but does not own the home-based business.
- Permitted incidental occupancies endorsement – Provides broader coverage for the property and the business as well as additional liability coverage.
Separate policies to cover the work-at-home business can be purchased for those who do not have a homeowner’s insurance policy. An experienced agent can define the actual insurance need and match the right product with that need.
Final Evaluation
All business owners will benefit from some detailed research about the many ways to insure against significant loss. All deductibles must be set at affordable levels in case multiple concurrent losses happen.
Comparison shopping is the best way to find reputable insurance companies that offer great rates for sufficient business insurance coverage. If one quote is retuned with very low premiums, investigate the actual coverage limits on the policy. Every effort must be made to balance the coverage against the expense and avoid insuring against every possible contingency.
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