How to Get Business Insurance: The Ultimate 4-Step Guide

Evaluate your risks

• What kind of accidents your business might be prone to: For example, a brick-and-mortar shop poses much more risk for a slip and fall accident than a home-based business.
• What kind of natural or unexpected disasters might affect your business: You might think about things like floods, earthquakes, fires, hurricanes, etc.
• Who staffs your business: Do you have employees? If so, you'll need to protect them and your business with certain policies.
• What kind of lawsuits could your business face: For instance, if you manufacture your own products, you're more likely to face a business lawsuit for product defects than other types of businesses.

Choose the right type of insurance

• Workers' compensation insurance: If you have employees, workers' comp insurance is required — although the details vary by state. Workers' comp insurance protects your employees in case they become ill or injured on the job.

• General liability insurance: This is one of the most common types of insurance and all businesses should invest in this type of coverage. General liability insurance protects your businesses from claims of bodily injury, property damage or personal injury by a third party.

• Commercial property insurance: Commercial or business property insurance protects your equipment, office space, inventory and more from loss or damage. This type of policy will be particularly important for businesses that operate out of a brick-and-mortar location.

• Professional liability insurance: This insurance, sometimes referred to as errors and omissions insurance protects professional-service businesses (designers, consultants, accountants, etc.) from claims of negligence or other service-related errors. Professional liability insurance is necessary for any business that provides expert advice.

• Product liability insurance: If your business sells any type of tangible product, product liability insurance will protect you from any claims related to defects in those products, including manufacturing, design and marketing defects.

• Business interruption insurance: If damage or disaster causes your business to temporarily shut down or slows business, business interruption insurance can help make up for lost revenue.

• Cyber liability insurance: Cyber liability insurance covers claims and costs incurred when your customer data — or any data that has personally identifiable information — is leaked or stolen. This type of policy is important for any business that stores data on the cloud or on an electronic device.

• Directors and officers insurance: D&O insurance protects the personal assets of directors and officers, should they be sued personally based on a decision made or action taken on behalf of the company. This one is particularly important for business owners with outside investors or in regulated industries.

• Key person insurance: Key person insurance is akin to a life insurance policy for essential members of your business. In case something happens to this "key person," your insurance provides funds to help you cover losses and hire a replacement.

• Business owner's policy: A BOP combines multiple types of commercial policies into a single more affordable bundle. Business owner's policies typically include general liability insurance, commercial property insurance and business interruption insurance; however, many providers allow you to customize these policies to add other types of coverage as well.

Use a broker

• Specialization is key: Although you might be inclined to utilize the first reputable broker you come across, if you take the time to find a broker that specializes in your industry, you’ll get way more value out of the exercise. A good broker that's experienced in your industry will help you get business insurance that is less of a contractual burden and more of an investment, allowing you to mitigate your risks and grow your business.

• Vet for knowledge and technique: First and foremost, you'll want to vet your broker to ensure they're reputable. You'll want to ask to see reviews and references before working with them. Additionally, you'll want to vet the broker's expertise in your industry, as well as how they operate to ensure that the person is the right fit for your needs.

• Stick to one broker: Once you've found a reputable broker in your industry and have started a relationship with them, you'll want to stick with that person. Although it might seem advantageous to work with more than one broker to diversify your options, it will likely be more difficult to keep track of multiple processes and may even delay the quoting processes. If you end up deciding that the first broker isn't right for you, be open and honest — end that relationship before searching for a new one.

Use an insurance marketplace

Contact individual providers on your own

• Coverage of policy: First and foremost, whether you're purchasing a single policy, a bundled policy or multiple separate policies, it's important that you understand exactly what is and isn't covered under each policy. Although it may be tedious, you'll want to read the fine print and ask a representative (or your broker) any questions you have. For instance, if you're purchasing commercial property insurance, you'll want to determine what kind of disasters the policy covers. Not all policies cover floods, for example, so you'll want to be sure you know specifically what type of coverage any particular policy entails.

• Limits of liability: Distinct from coverage, the limits on your policy will tell you how much of a loss the business insurance company will actually cover. For example, the limits on a general liability policy are typically $1 million/$2 million. In other words, $1 million is the occurrence limit, the total compensation available for any one claim or loss. The aggregate limit, on the other hand, is $2 million — the total that can be paid out over the entire policy period, which is usually one year. As you might imagine, the higher limits you need on your policy, the more you'll pay for the policy on an annual basis.

• Premium and deductible: Speaking of costs, the price of the policy will certainly be important to consider. The premium will be your annual or monthly cost for the policy — general liability insurance, for example, usually costs around $500 per year. Of course, the greater your coverage, the higher your limits, and the more policies you need, the higher your premium will be. This being said, however, another integral part of the cost is your deductible. Whether or not you have a deductible and how much it will be will vary based on the type of policy and the insurer, but overall, the deductible is the amount of money you'll pay out of pocket before your coverage kicks in. Generally, the higher your deductible, the lower your premium — and vice versa.

• Payment terms: How will you pay for the policy? Are you billed by the broker ("agency bill") or carrier ("direct bill")? Is payment on the policy due upfront or in installments? Are you billed on an annual, monthly or some other basis? You'll want to understand how the insurance company charges you for the policy and how you can make payments — as this information will be important for your cash flow and accounts payable.

• Carrier rating: Finally, you'll want to ensure that the insurance carrier you're working with is a reputable one. To do so, you can look at their A.M. Best Rating. The A.M. Best Rating system is a letter grade system that shows the financial health and operating performance of a company. Generally, an A- rating or higher is considered strong, so you'll want to see where any carrier falls before agreeing to a policy from them.

When to reevaluate your coverage