New businesses have to make a lot of financial decisions. Start-up costs, production, marketing, internet services, equipment, supplies, legal advice, shipping costs…the list goes on and on. Solopreneurs, or self-employed “lone rangers”, often draw from savings, a modest investment or business loan to cover costs to launch the business. When it comes to expenditures, paying the electric bill or setting up a computer system is higher on the list than business insurance. Business is risky, right? Most self-employed business owners don’t realize just how risky it is.
Running a business without proper insurance coverage can be a catastrophe! While large companies have deeper pockets, small business owners hit with a lawsuit or interruption in business may not be able to recover financially. In a recent Inc.com article, “Getting the Right Insurance When You’re Going Solo,” business owners confided that they didn’t have business insurance and were relying on their homeowner’s insurance to protect their home-based businesses. Big mistake, said Dan Peterson, a manager with Larson, Allen, Weirshair & Co., LLP. Most homeowner’s insurance policies exclude home business liability. What is worse, many solopreneurs won’t find out they’re not covered until disaster strikes and it’s too late.
Insurance providers haven’t considered home-based businesses a good risk for a number of reasons. They haven’t been around long enough nor have enough employees to make it worth the business. They don’t have the same policies and safety measures larger employers have in place to minimize the risk of accident, injury or just the basics, like fire protection and security systems. With 22 million one-person businesses reported in 2012, insurance professionals can build a niche business and offer a valuable service to help solopreneurs protect their investments and build their business with proper insurance protection like their larger competitors.
How can a small business get proper insurance? What types should they consider? Here are five tips for finding (or helping a small business secure) the right insurance coverage.
1. Start with your homeowner’s insurance provider. You may be able to leverage your relationship with an existing agent or company to get the coverage you need. Some companies may offer an endorsement to a homeowner’s policy that will extend coverage for a home business for a modest fee.
2. Consider value rather than cost. Any expenditure should have a reasonable rate of return. Solo businesses often look at the price tag without considering the value of insurance should disaster strike. While monthly premiums deplete the cash account, replacing everything lost in a house fire or flood could put you out of business for good.
3. Pick the right insurance. Your business type, services, and whether you see clients in your home office can determine what type and level of coverage you need. You’ll need liability insurance whether you see clients in your home or go to their site. If you set up your laptop and projector to give a training program and someone trips and falls over the cords sending them to the hospital, you may be liable for his injuries. Giving advice? Consider Errors and Omissions coverage. Business Interruption coverage will cover the loss profits and continued fixed expenses of your business if a disaster closes you down. An extra-expense clause on your homeowner’s insurance would cover the cost of renting office space and other expenses if a serious event requires you to find a temporary location.
4. Protect the intangibles. Your company just came up with the new Facebook or killer app that will change the world and make you a gazillionnaire. Without intellectual property insurance, your great idea may be up for grabs. You’ll also need to protect your company’s data files from hackers with breach-of-security coverage. These can be pricey, but are a great value when your ideas are worth millions.
Bunge jumping or hang-gliding may be fun, risky experiences, but you’ve got to have the right equipment and safety training to make it a good experience. Running a small business without insurance is like jumping off the cliff without making sure your safety line is secure. You may not need the protection, but if the bungee cord breaks, you’re sure glad you had it. With a tough economy, more small businesses will offer new opportunities for creative insurance providers who make sure the safety harness is secure before clients jump off the cliff.
Photo source: Freedigitalphotos.com
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