BUSINESS STRATEGY & GROWTH • May 11, 2016
2 minutes Read
You know you should have insurance to protect your small business. But having the right insurance is critical. When you have a claim, you don’t want to find out that you don’t have the right coverage in place. Watch out for these three small business insurance pitfalls provided by Hiscox.
1. Not knowing what is covered. There are two major kinds of business insurance: general liability insurance and professional liability insurance. General liability covers property damage and bodily injury of a third party; so, if someone slips and falls in your shop, you’re covered. Professional liability (sometimes called errors and omissions or E&O) covers you if someone sues you for doing something wrong (an error) or not doing something you should have done (an omission). Most businesses need both general and professional liability insurance.
Here are some examples. A regular client comes in to her favorite beauty salon on a rainy day. She slips and falls on the tile floor, breaking her hip. The salon may be liable for her medical expenses, but a general liability insurance policy could cover the salon’s costs. A local news anchor visits the same salon to have her hair colored once a month. Her colorist tries a new formula and the client has a severe allergic reaction to one of the ingredients. Because of the rash on her face she cannot work for several months. She sues the salon for negligence, but their professional liability policy may cover the claim.
If you have certain specific risks in your business, you may want to consider additional, specialized coverage. For example, if you need to store or use sensitive customer information, like Social Security numbers, birth dates, financial records or medical information, you should consider cyber insurance. This specialty coverage may be available as an add-on, or rider, or as a separate policy.
2. Choosing a deductible that’s too large. Small businesses need to pay close attention to cash flow, so choose your deductible carefully. A large deductible will lower your premium payments slightly, but you’ll have to pay more out of your pocket if you have a claim. If your deductible would put a big dent in your business’ cash flow, pay the few extra dollars a month for a smaller one. Otherwise, you’re being penny wise and pound foolish, as your mom used to say.
3. Thinking you don’t need insurance. It may be tempting to forgo business insurance, or to let a policy lapse if you’ve never had a claim. But the more your business grows, the more you need business insurance. As you interact with more customers and vendors, or add employees, your risks increase. And as your business becomes larger, you have more on the line. A professional liability insurance policy can cover your costs if you’re sued, even if you are not at fault. And, most policies will pay your legal costs as well as any settlement or judgement. In today’s litigious society, it pays to be protected.
A licensed insurance agent can help you determine what coverage you need, and what your deductible should be. Getting—and keeping—the appropriate coverage ensures that your business will be protected when you need it most.
Photo credit: Tashatuvango/shutterstock.com
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