6 little known facts about insurance every small business owner should know
Purchasing commercial insurance is a necessary evil that all business owners have to do once a year. Many business owners have a tendency to rush through this process because they feel it is taking their time away from what they do best, which is running their business. What many business owners fail to realize is that not all insurance companies and not all insurance policies are created equal. Taking just a few more minutes of your time can reap enormous benefits for your company. Here are six misconceptions many business owners have about the process of buying commercial insurance. Taking just a few minutes to understand these policies a little better can help your business when you buy insurance and in the unfortunate event that you have to use it.
General Liability covers my employees if they are injured at work
This statement is completely false. General Liability Insurance covers the liability your business faces to third parties injured by the actions of your business. This includes both property damage and bodily injuries. Employees are not covered by this policy. A Workers Compensation Insurance Policy would cover the injuries to your employees if they were hurt on the job. Workers comp coverage will cover your employees medical care and some lost wages when they are hurt on the job and not able to work. In most states and for most policies the amount for lost wages is 60% of what they normally make.
My claims history is what determines what I pay in premium
There are actually many things that go in to how a carrier determines what you pay in premium for coverage. The industry you are in goes a long way towards determining what you pay for premium. You can understand how a business with an office setting has a lower risk for bodily injury than a moving company. Because of the amount of risk involved in the work, the insurance company must charge more in premium to make up for the risk they are taking covering the business. The classification code you are placed in also makes a big difference. Some industries have as many as 5-10 class codes depending upon the type of work the business does. Landscaping is one such industry. There is one classification code for a business that simply mows existing grass. Other businesses install sod and still some others offer tree work where employees climb in to trees with chain saws. Each type of business has dramatically different risks and as a result they have different rates for premium.
Your personal auto policy will cover your car when you are using it for business purposes
In most cases a personal auto policy will not cover damages that occur when the vehicle is being used for business purposes. This is because the primary reason the vehicle is where it is, is a result of the actions of the business. Therefore, the liability for the accident lies within the business and not the individual. In most cases, the personal insurance policy will pay to cover the damages to your car, but it will not cover your liability to third parties. That liability falls on the shoulders of the business. For that reason, you will need to secure either a commercial auto policy or a hired and non-owned auto policy.
You must pay your insurance premium in full up-front
Depending upon the carrier you choose to purchase coverage with, it is not always true that you must pay the entire amount of premium for the entire year at the beginning of the term. Most commercial policies require 25% or more of the premium in order to get coverage in place. After this is secured the business will owe 9 monthly payments over the last 9 months of the policy period. There are other options that can limit the up-front costs to get coverage in place. A Pay as You Go option is offered for most general liability and workers compensation policies. Pay as you go can usually get the coverage in place for only a few hundred dollars and then the business must pay premium each month based upon the monthly payroll. This is an excellent option for seasonal or cash-strapped businesses.
All businesses are required to carry Workers Compensation Insurance
Whether or not you are required by law to secure workers’ comp coverage depends on several factors. First and foremost, the laws and regulations within the state you operate in may or may not require your business to secure coverage. Each state has their own system and they give exclusions to some specific businesses. Checking with your state governing agency can help you determine if you even have to secure coverage. If you are not required to secure coverage, it is more than likely in your best interest to secure coverage unless you or your business has a vast supply of readily available cash to cover the cost related to an injured employee.
General Liability Insurance is an all-encompassing coverage.
General Liability covers the basic liability your business faces for property damage and bodily injury to third parties. It does not cover your property, equipment or your liability when offering professional advice and services. These risks would have to be covered by separate commercial property, inland marine or professional liability insurance. Assuming that any insurance policy covers everything is a risky proposition. This is where the help of an experienced independent insurance agent can be extremely beneficial to your business. Most agents can help you determine how much risk you face and how much risk you are willing to take on. How much coverage a particular business needs is personal to the business owner and with a short conversation with an agent they can help you cover your business in the way that best suits your business’s needs.
Bio
Allison Melvin has been an Agent at General Liability Shop.com since 2013. April specializes in all types of Commercial Lines for Small Businesses, including Data Breach, Property and Casualty, Errors and Omissions and Workers Compensation Insurance. She would like to use her expertise and passion for the commercial insurance industry to help the small business community.