BizAims

Anybody who starts their own business soon finds that business insurance is one of the biggest and most important expenses they face. This means that every entrepreneur should have a good understanding of what business insurance is and how it works.

Insurance Basics

Business insurance is designed to cover the expenses related to losses that could not be covered by a business's normal revenues. Generally, insurance pays for losses caused by events outside of a business's normal scope of operations.

It may also pay for losses caused by events over which the business has no control, such as fire, theft, auto accidents, and damage caused by the weather.

Different Kinds of Insurance

Businesses are often required to have a number of different kinds of insurance: health, workers' compensation, liability, commercial vehicle, and catastrophe, for example.

This generally means that a business will have to purchase more than one insurance policy. In some cases, a business may be able to add riders or endorsements that tack additional coverage onto an existing policy.

Business Insurance

Insurance Requirements for Business

The amount of insurance a business requires is usually determined by the risks it is taking. In insurance, risk means the likelihood that a loss will be incurred. The more likely a loss, the more a business pays for insurance.

For instance, a roofing business pays more for insurance than an accountant does because the roofers take more risks. Roofers are more likely to get hurt and more likely to be sued for damages caused to a client's roof.

The types of risks taken can also determine the insurance needed. An accountant probably won't need disability insurance, but she will need liability insurance. Liability insurance protects the accountant if one of her clients blames her for a financial loss and sues her.

Buying Insurance

Everybody who goes into business should determine what kind of business insurance they need and purchase it.

Generally, a business should carry enough property insurance to replace all of its equipment and its place of business. A business should also carry liability insurance to protect it from lawsuits, as well as life insurance on its owners or executives.

Businesses are often required to have certain kinds of insurance under the law. Most states require businesses to carry workers' compensation insurance on their employees.

It is always a good idea for a person starting a new business, buying an existing business, or expanding a business to talk to a knowledgeable insurance agent. An agent can tell an entrepreneur what business insurance he or she will need and how much it should cost.