In the United States, there are approximately 33.2 million small businesses. If you’re among them or want to join their ranks, you may wonder whether getting business insurance is a smart move or if it’s potentially unnecessary. After all, small business insurance typically costs between $14 and $340 per month, depending on the type of policies or the number of policies you get. Depending on your income level, higher rates could be a significant strain on your budget.
However, by understanding a bit more about what business insurance provides, it’s easier to see the value it offers. Here’s what you need to know about business insurance.
The Basics of Business Insurance
Business insurance is a type of financial safety net that protects you against business-related losses and provides funds in specific situations. Essentially, it’s meant to limit your financial exposure. When a qualifying incident occurs, the insurance company compensates you for the related losses or expenses.
There are multiple types of business insurance, each offering a unique kind of protection. For example, some focus on physical property, such as equipment and materials. If the covered items are stolen or damaged in a covered incident, such as a fire, the business receives funds that can help repurchase or repair the property.
How Business Insurance Works
Business insurance works similarly to the other types of insurance most people are familiar with, such as homeowner’s, renter’s, or auto insurance. The policies provide coverage for specific events, situations, or property. Then, when a qualifying incident occurs, policyholders can contact their insurer to file a claim.
The claims-filing process varies depending on the type of business insurance you have in place. For property insurance, you might need documentation showing it’s a qualifying incident, such as a police report if the claim is related to theft or vandalism. A list of the damaged items is also often necessary, and an adjuster may need to come in to view the damage to move the claim forward.
For liability-related business insurance, documentation is primarily what’s needed. That could include copies of lawsuit documents, for example. Typically, the insurer will outline what’s required to support the claim, giving you clear guidance.
Once the claim is approved, the policyholder receives compensation from the insurer. After that, they can use the funds to recoup money spent or fund further activities related to the claim.
What Business Insurance Protects Against
What business insurance protects against depends on the type of policy purchased. As mentioned above, property insurance focuses on physical items like equipment, materials, inventory, signage, and furnishings. Professional liability insurance works differently, as it’s primarily designed to offset the financial burden created by claims of negligence or failure to meet contract terms.
Home-based business insurance covers business-related assets that aren’t addressed in homeowner’s insurance policies. Product liability insurance provides coverage for damages experienced by others who use your product.
Ultimately, the type of business insurance you choose determines the protections available through the policy. As a result, it’s wise to look at the available options to find a policy (or set of policies) that addresses the specific needs of your business.
