Insurance Corner: Insurance needs for small businesses

Small business has its set of challenges. One of which is projecting all expenses to manage to a profit. One of the expenses overlooked is the cost of insurance. Unless you want to expose yourself to personal lawsuits, you should protect yourself and the business with a business owners policy.

A business owners policy consists of a property and liability section. The limits of coverage and cost of the insurance is dependent on the exposure. The factors taken into consideration when an insurance company prices the policy are type of business, projected income, value of building and/or personal property and loss experience.

If a business has a history of claims, the cost of insurance is higher. If it is a new business with no loss experience, the insurance company will look at the experience of the owner working in that particular industry. Startup businesses are not easy to place since there is no track record of loss experience. In most cases, companies would assign a higher cost to a business with a high frequency of losses versus a company with one severe loss. Obviously in a case where there are losses, the company looks for loss avoidance procedures on the part of the business. Also, if theft has been an issue, an alarm system or video cameras would help contain the cost of insurance.

Most small businesses start out in a rented facility. The landlord is responsible for coverage on the building itself and would include this cost in the rental cost. The business must determine what amount of coverage would be necessary to protect its interest in the store, or in the case of a service business, the equipment used in the course of the business. In the case of a gift shop, this value may fluctuate by season. You may need a peak season endorsement to cover a higher inventory of goods around Christmas, for example.

Liability insurance is typically written for limits of $1 million-$2 million. This translates to $1 million per occurrence and $2 million in aggregate for the policy period. Each business has a classification that helps determine the rate. The higher the exposure, the higher the premium. For instance, restaurants or bakeries that sell consumption items would have a higher rate than a gift shop, where the major exposure would be a slip and fall in the shop. The amount of insurance carried may depend on landlord requirements or in the case of a subcontractor the amount that the general contractor requires. The higher the amount of coverage, the higher the rate. An umbrella liability policy can also be purchased to increase the liability coverage by $1 million or $2 million.

If your business has three or more employees, you must purchase worker’s compensation coverage. This insurance is priced based on activities of the workers and the payroll associated with those activities. The more dangerous the activities, the higher the cost. The greater the loss experience and payroll, the higher the cost.

If you own a small business or are thinking about starting one, you might want to meet with an insurance agent who writes commercial policies to get an accurate cost for the coverage you need.

Dave Pushman, a former regional vice president of Geico in Macon, is an independent insurance agent with Tidwell and Hilburn Insurance. He can be reached at