Every small business owner, sole proprietor, or self-employed professional knows they need to be prepared to manage unexpected expenses or events that unfold.

Zensurance’s 2022 Small Business Confidence Index highlights some of the significant concerns business owners have, including the impact inflation is having (51%), the cost of fuel (16%), and managing cash flow effectively (13%). Regarding cash flow challenges, it makes small business insurance essential if your business suffers an accident, loss or damage or is named in a lawsuit.

And yet, a 2016 Deloitte survey of Canadian small business owners found only 6% of respondents rank identifying and managing insurable risks and protecting themselves from lawsuits and litigation among their top priorities. Fast-forward to 2023, and a separate poll finds seven out of 10 Canadian small businesses dealt with a legal dispute in the last three years, representing a 230% increase from 2015.

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Nevertheless, if you’re exploring what your options are to insure your company, startup, or home-based business, here are seven factors to weigh before purchasing a small business insurance policy:

1. What type of insurance you need

It can be tough, but determining what type of policy you need depends on your business or profession and the products or services you provide. Think about the potential risks you face and your industry. While most small businesses require coverages such as general liability, commercial property, and cyber liability protection, every industry differs.

For instance, a construction or demolition contractor likely requires pollution liability coverage, whereas a retailer or online seller needs product liability coverage. Or, if you’re a beautician or spa owner, in addition to product liability coverage, you may also need professional liability insurance if you’re providing treatment to your clients. Moreover, in light of the spike in legal disputes challenging business owners, legal services insurance can help offset those costs.

Evaluating your business’s risks makes it easier to identify the coverages you need.

2. What laws or industry regulations require your insurance to include

Although it may vary by provincial jurisdiction, some professions or industries are legally mandated to carry a certain amount of general liability or professional liability insurance.

For example, accountants who are members of the Chartered Professional Accountants of Ontario must carry a minimum of $1 million worth of professional liability insurance coverage whether they work independently, in a partnership, or through a corporation.

In some instances, your clients may require you to carry a specific kind of insurance. A contractor or construction company may need builders’ risk insurance or wrap-up liability insurance to win a contract.

Research your legal and regulatory obligations about your region or industry, and make sure you’ve got the policy you must have to comply with those requirements.

3. Emphasizing coverage instead of price

Everyone wants to save money on whatever they need to buy (especially in our current economic environment). But there are some things you shouldn’t scrimp on, and one of them is insurance. In other words, basing your insurance-purchasing decision on the lowest price is not necessarily the way to go since you could be underinsured. 

If there’s one thing you don’t want to happen, it’s suffering a loss, filing a claim, and finding out you’re not covered for it. Now you’re out-of-pocket to pay for damages on your own.

Instead, emphasize the type of coverage you need and what your policy entails regarding limits and exclusions, and then compare your options regarding the annual premium. Overestimate your needs. For example, even a frivolous lawsuit against you that a court dismisses can be financially devastating.

4. Understand what triggers a premium increase

Many things can cause your annual premium to rise, some of which are factors beyond your control.

A challenging economy, inflation, an increase in severe weather events and natural catastrophes that cause a spike in insurance claims and fraud all contribute to increasing insurance costs. 

Insurance companies rely on the premiums they collect and their investments to cover the cost of claims they receive. Therefore, when inflation is high, investment returns are low, and claims increase, those things can cause rate increases.

There are some things you can control, however, to help keep your premium as low as possible, including:

  • Don’t allow your insurance coverage to lapse. Ensure you renew your annual policy before it expires.
  • Mitigate your risks by creating a safe environment for employees and customers.
  • Don’t allow employees with poor driving records to operate your business vehicles.
  • Take proactive measures to prevent an accident or incident to your commercial property by doing regular maintenance. An insurance policy is not a maintenance contract. That means it’s your responsibility to ensure you take care of necessary repairs to your property or equipment.

Insurance companies consider many things when determining the cost of your policy. One of them is your claims history. Some insurers may provide a modest discount for business owners who have been claims-free for over six years.

5. How the deductibles you choose affect your premium

Most insurance policies include a deductible, which is the amount you must pay after filing a claim before your insurer pays out. 

You have the option of choosing the level of your deductible. In general, the higher your deductible, the lower your annual premium. But, for instance, if you choose a $1,000 deductible for your commercial property coverage and must file a claim following an insured loss, make sure you have those funds available to pay the deductible.

6. Why partnering with an insurance broker is wise

There’s often confusion about the difference between an insurance broker and an insurance company. Though they work together, they are two unique businesses. 

You can go it alone and deal with an insurance company directly online or through one of its agents, or you can choose to partner with an insurance broker. Unlike an insurance company agent, a broker does not work for one insurer or another. They work for and represent you.

When you fill out an online application with Zensurance, our brokers shop our partner network of more than 50 insurance providers to find a low-cost policy that adequately covers you if you need to file a claim. 

Your broker can advise you on the types of coverage you should have, explain the limits and exclusions of the policy, and answer your questions. They take the mystery out of it by explaining the insurance terms in your policy to you in plain language.

Like a financial retirement advisor provides counsel and recommendations on investing, a business insurance broker is your guide to understanding your policy and ensuring you are neither underinsured nor overinsured.

7. What happens if you file an insurance claim for loss or damage

If you submit a claim following an insured loss, what happens, and how long does it take to receive funds to address the situation? Your insurance company determines the outcome of any claim for loss or damage you submit. 

Your Zensurance licensed broker can help you submit a claim with your insurer and serve as your representative if you need help submitting a claim and ensuring it is addressed quickly or if you wish to dispute your insurer’s decision related to a claim.

Be in the Know: Review Your Business Insurance Policy Annually

Purchasing business insurance can be confusing and frustrating, but it doesn’t have to be. It’s highly recommended to review your policy annually and ensure you’re getting value for money and, as your company changes, to address any emerging risks. Sometimes, it’s necessary to make changes and update your policy.

Let our friendly, licensed broker team help you get the policy you need at a price you can afford. Fill out an online application today to get a free quote. 

If you have questions, talk to us. Our brokers do more than sell and customize policies. They can also advise you on how to effectively reduce your risks and avoid expensive damage or loss from occurring in the first place.

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About the Author: Jon Hogg

Jon Hogg is the Senior Team Lead, Renewals, at Zensurance.