Business owners are required to be frugal in many areas to keep their businesses running efficiently. Insurance requirements for the business can be overwhelming, but there are ways to reduce costs without compromising the coverage. There are some very important reasons to find good insurance for affordable premiums.
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Reasons to Insure
Some people have a natural tolerance for risk that should be evaluated against the perils that might cause significant loss. Certain types of business insurance are required for these reasons:
- Mitigate risk of loss – When the business has a healthy cash flow throughout every month of the fiscal year, more risk can be carried by the company. Every business owner is faced with that crucial decision to find the line between covering expense and risking irreparable loss.
- Legal compliance – Employee-related insurance, such as unemployment, health, liability and worker’s compensation insurance are required by every state.
- Property coverage – Equipment, vehicles and buildings can be damaged from many types of perils. If certain business property suffers damage, the ability to conduct business could be affected until replacement is possible.
- Business continuity – Cash is required to make necessary repairs following a significant loss. This type of insurance replaces lost income to allow the owner to pay valuable employees until operations are restored to normal.
- Recovery after loss – Just 20 percent of all businesses will recover from a significant loss. All businesses should have a written recovery plan that includes how insurance funds are to be used.
Perform a Risk Assessment
Once the reasons to insure the business are understood, the decision makers must spend the time to assess the actual risks that face the business. Important questions must be answered to secure the correct types of business insurance. This step in the process cannot be overemphasized.
Understand Various Components
Whether rates are secured through an online quote or discussions with an experienced insurance agent, significant detail must be acquired to make wise decisions concerning insurance coverage. All policies must be reviewed on an annual basis to make updates to coverage and costs.
- Business property – One of the best ways to control the cost of business property insurance is to add riders to the policy to carry specialty equipment. All policy limits should be set high enough to cover loss. Deductibles can be raised to offset premium amounts if the cash is available.
- Health insurance – When employees contribute a portion of the monthly healthcare premium, they are more apt to realize how their habits impact costs. All employers must provide access to health insurance to their employees
- Auto insurance – Personal car insurance policies should never be relied on for coverage of business vehicles or the personal vehicles belonging to owners or employees. Cost control in this category begins with hiring people with good driving records.
- Worker’s compensation – Every state requires that businesses carry state-issued worker’s compensation insurance. Annual premiums are tied directly to the type of work performed.
- Unemployment insurance – Every employee must be covered by state-issued unemployment insurance. An employee who has worked for six consecutive months with the same company is eligible for unemployment payments if they are involuntarily terminated.
- Disability – Most experienced business insurance agents will encourage the company to carry disability coverage on every owner and principal. This option can be provided as part of the employee benefits if desired.
- Life Insurance – Employees will participate in the optional life insurance program, but all owners and principals should be covered by a life insurance policy that names the company as the beneficiary. This is an important detail since the proceeds from the policy will fund the transition plan if the unthinkable happens.
- Business Owner’s Policy – A combined policy that covers most of these components is called a BOP. This approach will cover many small businesses with basic needs. The effort to manage a BOP is much less than having separate policies for each type of coverage.
Using all of the information from the assessment, an online quote can start the research process. All information must be input consistently to provide accurate quotes. Once a set of quotes has been provided, the work must begin. Very low quotes must be evaluated for adjustments to requested coverage limits and deductibles. Many businesses have fallen prey to insufficient coverage because saving money was chosen over mitigating risk.
Lower the Premium
Businesses struggle to make ends meet because of the many business insurance requirements. Cutting corners on the amount of coverage is not necessary if these methods for lowering the annual premiums are used.
- Umbrella liability – Annual premiums for this type of policy are significantly lower than carrying large liability limits on all the other policies.
- Deductible – Every insurance policy has a separate deductible. Simultaneous losses can cause a financial hardship and even cause the business to close if all of the deductibles are not considered en masse. Carrying higher deductibles will lower annual premiums.
- Policy reviews – Whenever significant business events occur, insurance reviews should be conducted. Major purchases must be added to the policy coverage. Reductions in property must be removed from the coverage. Risk levels will change throughout the life of the business and updates can save money.
- Security efforts – All attempts to reduce risk through the use of locks on doors and gates, alarms and cameras will lower the possibility that theft and vandalism will occur. Insurance companies offer significant discounts to businesses that embrace security.
- Safety training – Risk of injury and death can be reduced by having all employees trained to follow OSHA safety standards. Worker’s compensation rates will be lower if every person undergoes safety training.
Insurance is probably the most hated fact of life for business owners. Only after a significant event do most decision makers resign their hearts to accept the necessary evil that is business insurance. When the business is able to recover from loss and the employees’ jobs are saved, the relief that overwhelms all involved cannot be expressed verbally. Efforts to lower costs are important, but insufficient coverage can be devastating to the life of the business.
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