As a new business owner, your insurance needs will depend upon the type of business you run. For example, a self-employed computer consultant who operates out of her home will have insurance needs that are significantly different from a 10-employee company that manufactures explosives. The cost of insurance, therefore, will also depend upon the type of business you operate.

To find an insurance agent, ask your small business friends and associates who they use. Another source that may be more focused, more experienced, and less expensive is your industry association. Industry associations usually provide a large, predictable, homogenous pool for underwriters, which generates lower rates. They can often provide one-stop shopping for both business and personal insurance needs (e.g., liability, property and contents, life, medical, etc.).

 

Save Money You can sometimes save money by having all of your insurance needs met by one company. Thus, when comparing prices, don't look at just one type of insurance to make your decision. Look instead at whether you can save money by having a single company handle all of your needs. One good way to do this is by contacting an independent insurance agent who can do the shopping for you.

Obtain bids for a complete insurance package from several different insurance agents and companies. When you are comparing insurance proposals, make sure you are not inadvertently comparing apples and oranges. Make sure the packages have very similar types of coverage and amounts of coverage. Below are brief descriptions of the various types of insurance that your new business may need. Remember, no two businesses are alike. Some businesses may require additional types of insurance and some may require only a few of those mentioned.

• Property insurance — this insurance will cover losses arising from physical damage or loss of use of the property or theft losses. Remember to insure against the losses of the contents of your business, too. It is very possible to have a larger investment in machinery and equipment, inventory, and business records than the actual business building.
• Business interruption insurance — this type of insurance will pay your bills while you are out of operation for a covered loss, such as a fire. Just because your business is shut down does not mean that your bills will stop. This type of insurance can also provide your business with the lost profit protection, although such coverage is expensive.
• Liability insurance — this type of insurance protects you if you are sued. It will pay judgments against you up to the policy limits, as well as the legal fees you incur in defending yourself. Some small businesses, such as doctors and lawyers, will also need to carry professional liability coverage, which protects the insured against lawsuits that result from professional error.
• Key person insurance — this type of insurance includes coverage for the owner's or manager's death or disability. It is meant to get a company through the tough times following the loss of a key person and includes a buyout of the deceased owner's interest at the time of death.
• Workers' compensation insurance — this type of coverage is necessary for those small businesses that have employees. It varies by state and employee job duty classification. The cost will vary based upon the worker classification.
• Health insurance — this type of insurance pays the medical bills for covered illnesses and injuries. Buying insurance through your business can be cheaper than buying an individual policy for yourself. Because of the high costs, most small employers don't offer health insurance as an employee benefit.
• Life and disability insurance — these policies provide covered individuals or their families with income in the event of death (life insurance) or a disability not related to work (disability insurance). These types of insurance are relatively inexpensive.

Planning your insurance needs is just as important as any of the other planning you will do or have done for your new business. It's possible to reduce your overall insurance costs by instituting certain safety procedures. Ask your insurance agent what steps you can take to reduce your costs.

 

Work Smart You should reevaluate your total insurance package on a regular basis. Are there additional risks that you want or need to insure against? Is the amount of insurance coverage high enough or is it too high? When you reevaluate your insurance, make sure that you are insuring only assets that you still own and that some assets are not uninsured.

For a more detailed explanation of all your business insurance options, see our discussion of insuring your office and equipment.