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

Understanding how to manage your business’s cash flow effectively is a top concern among business owners and independent contractors, and it’s one that makes small business insurance essential if your business suffers an accident, loss or damage, or is named in a lawsuit. And yet, a 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.

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:

An entrepreneur thinking about insurance

1. What kind of insurance do you need?

Determining what type of policy you need depends on the type of business you have and the products or services you provide, the risks you face, the industry you’re in, and other factors. While most small businesses require coverages such as commercial general liability, commercial property, and cyber liability protection, every industry is different.

For instance, a construction or demolition contractor likely requires pollution liability coverage, whereas a retailer 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. Evaluating the risks your business faces makes it easier to identify the coverages you need.

2. What insurance do you need legally?

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 be required to have builders’ risk insurance or wrap-up liability by a client to win a contract.

Research your legal obligations as it pertains to your region or industry, and make sure you’ve got the policy you must have to comply with provincial or industry regulations.

3. Emphasizing coverage over insurance 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 end up underinsured. If there’s one thing you don’t want to happen, it’s suffering a loss and filing a claim only to find out you’re not covered for the loss. Now you’re out-of-pocket to pay for damages on your own.

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

4. Know what triggers a premium increase

Many things can cause your annual premium to rise and some of those things 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 insurance fraud are factors beyond your control that contribute to the rising cost of insurance. 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 there’s an increase in claims, 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 the risks you face by creating a safe environment for employees and customers.
  • Don’t allow employees who have poor driving records to operate your business vehicles.
  • Be proactive and take preventative measures to prevent an accident or incident to your commercial property by doing regular maintenance, for example. 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 are claims-free for more than six years.

5. Choosing your deductibles

Most insurance policies include a deductible, which is the amount of money 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 you must file a claim following an insured loss, make sure you have those funds available to pay the deductible.

6. How does an insurance broker help?

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 other. They work for you.

When you fill out an online application with Zensurance, our brokers shop our partner network of more than 50 insurance carriers to find the policy you need at the best price available. Your broker can advise you on the types of coverages 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 or overinsured.

7. How are claims handled?

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 stickhandle 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.

Review Your Business Insurance Policy Annually

Purchasing business insurance can be confusing and frustrating, but it doesn’t have to be. You need to review your policy annually to make sure you’re getting value for money. 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.

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