Insurance Factors
Many factors go into deciding what types of insurance and what levels of insurance your business will need. Some of those factors include industry, geography, and company structure.
Industry
A professional services firm or a marketing firm, as an example, would need different types of insurance than, say, a medical clinic. They face additional risks and have other business models. Industry plays a vital role in the types of coverages that you might need. Different disciplines (compare an accountant to a lawyer) will also have other insurance needs even within the professional services industry. Their nature of operations is very different. Not only is the general industry important, but how you operate will also be a determining factor in the types of coverage and the levels of coverage that you need. How you run your business and manage your operations all play a factor in the overall risk needs.
Geography
Your location will play a role in determining what types and coverages you need. An example of this would be that your business may be at a higher risk for hurricanes or flooding if you operate on the coast. Therefore, you may need different types and levels of coverage. There may also be insurance requirements depending upon your operating location. For example, most states (but not all) require workers’ compensation insurance. When you operate with employees, some states require certain levels of auto insurance as well. All these different factors go into determining what types of coverages need.
Company Structure & Size
How your business is legally structured is also a critical determining factor. If you are a partnership or a sole proprietor, there’s less of a barrier between your personal assets and your business. As an example, you may want to consider higher limits than if you were structured as a corporation or an LLC entity. As your business grows, so do your insurance needs, as you have more assets to protect. There’s also more chance of risk the larger you get. Insurance isn’t a “set it and forget it” type thing; as your business morphs and pivots and grows, it will become key to make sure you are adequately covered. You need to make sure that you’re working with a risk advisor who understands your business and helps you navigate what types of insurance you need as your business changes over time.
Work & Payment Requirements
To perform your work and get paid for your work, you will also need to consider what types of insurance will be required. As you start to work with larger clients, contracts will begin to require certain insurance
levels and types. This is an important fact to remember, otherwise without it; you may lose out on an opportunity to work with a new client. But you either can’t get the insurance in time or can’t afford the insurance. The most common type of insurance for contractual requirements is general liability insurance. Most client contracts will have some general liability insurance requirement. Generally, they’re looking for at least a million dollars per loss and two million in aggregate. That means that the insurance company will pay up to a million dollars for each claim and $2 million in aggregate, meaning that’s the most the insurance company will pay regardless of the number of claims during your policy period. So general liability is an important consideration to sign some contracts. Some contracts may also require professional liability and other types of coverages. As you start to work with larger clients, the insurance requirements tend to grow with it.
Types of Coverages
Often in the early stages of your business, and while you’re scaling, you’ll be forced to prioritize, insuring some risks over others. This is where a good risk advisor can become an asset. They can customize a solution for your business based on the factors mentioned above. They’ll walk you through the coverages that would be needed based on those priorities. Below are the most common coverages that pertain to the professional services industry.
Business Owner’s Policy
Starting with what is considered the foundation of all small business insurance, the business owner’s policy. The business owner’s policy, sometimes called the BOP, was designed to address small businesses’ most common losses. The business owner’s policy comprises three different types of coverages: property insurance, business interruption insurance, and general liability insurance. Insurance carriers have bundled these together for convenience, meaning you will only get one bill. You will only have one policy to manage, even though you’re getting three different coverages. Also, it’s more cost-effective to them, which means it will be more cost-effective to you when you bundle these policies together (versus buying each coverage separately). Let’s quickly touch on what each of these three coverages does for you.
Property Insurance
Property insurance covers all the obvious things. It covers the physical structures of your work environment, as well as your business’s personal property. That’s all the pieces of equipment and tools that you may use to get your job done. Nowadays, a common question revolves around remote work and whether property insurance is still needed. The answer to that is yes, you likely do. Almost every small business has some minimal amount of business assets. Unfortunately, your homeowner’s policies will only cover small amounts of business property, if any, depending on the insurance policy. So if you were to have a loss or your employees were to have a loss at their home, likely, the homeowner’s policy will not cover the vast majority of the business losses that may occur.
Business Interruption Insurance
Business interruption is the second component of the business owner’s policy. Suppose your business is forced to be entirely out of commission or partially out of commission due to an event. In that case, this type of coverage can help you recoup some of the lost revenue that you would’ve recognized had your business been open or fully operational during that time.
General Liability Insurance
general liability is the third and final component of the business owner’s policy. Often general liability is referred to as “slip and fall” coverage. That’s because it provides coverage for bodily injury to other people outside of your organization due to your negligence. A great example would be somebody coming to visit your office and slipping and falling and injuring themselves. A general liability policy would cover this instance, but it also covers instances occurring on others’ property. A good example is a consultant at a tradeshow accidentally knocking over a neighboring booth damaging the entire display. Your general liability policy would likely respond to that type of scenario as well.
Another benefit of the business owner’s policy is that insurance carriers often throw in additional coverages in areas outside of these three when you buy their business owner’s policy. It becomes advantageous when you package these three policies together into a business owner’s policy.
Professional Liability Insurance
Professional liability is a must-have for any business offering professional advice, service, or consulting. Professional liability works well in any professional services organization when paired with a general liability policy. Your general liability policy will cover you for losses associated with bodily injury and property damage; professional liability will protect you from financial losses related to the quality of your work. An example of that might be an accountant who misfiles a tax return and costs their corporate client thousands of dollars in taxes. Another great example is a consultant who offers business strategy advice. A client comes back and says that the advice you provided hurt their business and cost their business money. The reality is that anybody can try to sue you over anything, and it doesn’t matter if you did anything wrong; you’re still going to have to go to court. You’re still going to have to defend yourself. You still must pay for your legal defense. This is where professional liability shines because it’ll help you pay for the cost of defense, and it will help you pay for any damages that you’re found liable for. Professional liability is the cornerstone piece of any professional services or service-based business.
Cyber Liability Insurance
Cyber liability insurance is a set of coverages that will help protect you from cyber-attacks and other technology-related risks that almost every business faces. If you’re taking online payments, using software systems, or using email, you’re at risk. It can be costly and even paralyzing to a poorly equipped business when an attack occurs. There are also state requirements that your business must comply with when you have a cyber breach, which can also be costly. There are other scenarios like having your data held for ransom or holding a critical system hostage until you pay a fee. Cyber liability insurance has quickly become a must-have for all businesses.
Disability, Life, Health, & Personal Insurance
The least often talked about in terms of foundational coverages for service-based firms is the suite of disability, life, health, and personal insurances as a business owner. Especially in early-stage business ownership, an overwhelming amount of business generation and project completion typically falls on the business owner. You are your chief salesperson, your principal consultant, and you have a lot of responsibilities in making the business continue to generate revenue. If you were to become sick or disabled or otherwise must step away from the company for an extended amount of time, you want to make sure that you’re still able to pay your bills and that you’re able to recover comfortably. Disability insurance will help you be able to have the comfort of knowing that you’ll still have some income coming in for you and your family should something happen. Life insurances are necessary, obviously for personal reasons and taking care of your personal assets. These types of policies can help your business keep going if you were to pass away. Often health insurance is overlooked in these early stages of business. All business owners should ensure that they’re getting the proper care. To do this, you need the appropriate health insurance coverage. Now that you’re a business owner, you open yourself up to new types of risks, and they can carry over into your personal life as well. You want to make sure that your personal insurance policies are working in conjunction with your business policies to provide you with the most holistic coverages that you can have across your business and your personal life.
At InsureGood, we advocate that all your policies work together. Someone should have a view over all the insurances you have in place, who understands your business and personal life. In conjunction with the above, there are some additional coverages worth considering depending on your business situation.
Commercial Auto Insurance
If you have a vehicle that’s registered in your business’ name or owned by your business, you’re going to need also to get a commercial auto policy; the coverages and levels of insurance that you need for that commercial auto policy are going to vary by state and your circumstances. It will protect you from financial losses and bodily injuries inflicted using your vehicle and will also protect you from financial losses to your property, your vehicle, and anyone who’s driving it or passengers in your car. Lastly, do you ever have employees drive for work-related purposes? If the answer is yes, you should have a hired and non-owned auto endorsement put onto your business owner’s policy (discussed previously). If an employee were ever involved in an accident and found liable, their personal insurance policies would not cover them if they were performing work-related tasks.
The next set of coverages involves employees. If you have employees, you open yourself up to a new set of risks and challenges as you grow your team. Below are some insurances that are required when you have employees.
Workers Compensation
Workers’ compensation is a requirement in most states. Insurances may vary by state, but workers’ compensation is essential because it covers you and your employees in the event of a workplace injury or illness. It covers the cost of the medical expenses associated with the ongoing care; any long-term, disability, or funeral costs that may arise. Workers’ compensation is an essential coverage, not only to stay compliant and avoid fines but also to protect you and your employees in the event of injuries or illnesses work-related injuries or illnesses.
Employers Liability Insurance
Employers’ liability insurance is a type of insurance that will protect you and your business from financial losses if an employee sues you. Often these lawsuits involve things such as sexual discrimination, sexual harassment work, any workplace discrimination, wrongful terminations, and unfair hiring practices. Employers’ liability insurance is essential to consider when you have employees.
Product Liability Insurance
Lastly, are you also selling or distributing any products? Service-based businesses, at times, will also launch a product line of some sort. They may not be manufacturing these products, but they’re selling or distributing them, perhaps white labeling them in their company name. If so, a product liability insurance policy is likely needed. Product liability insurance will kick in and help protect you if someone says they become ill or injured due to buying or interacting with your product.
Factors
Many factors go into deciding what types of insurance and what levels of insurance your business will need. Some of those factors include industry, geography, and company structure.
Industry
A professional services firm or a marketing firm, as an example, would need different types of insurance than, say, a medical clinic. They face additional risks and have other business models. Industry plays a vital role in the types of coverages that you might need. Different disciplines (compare an accountant to a lawyer) will also have other insurance needs even within the professional services industry. Their nature of operations is very different. Not only is the general industry important, but how you operate will also be a determining factor in the types of coverage and the levels of coverage that you need. How you run your business and manage your operations all play a factor in the overall risk needs.
Geography
Your location will play a role in determining what types and coverages you need. An example of this would be that your business may be at a higher risk for hurricanes or flooding if you operate on the coast. Therefore, you may need different types and levels of coverage. There may also be insurance requirements depending upon your operating location. For example, most states (but not all) require workers’ compensation insurance. When you operate with employees, some states require certain levels of auto insurance as well. All these different factors go into determining what types of coverages need.
Company Structure & Size
How your business is legally structured is also a critical determining factor. If you are a partnership or a sole proprietor, there’s less of a barrier between your personal assets and your business. As an example, you may want to consider higher limits than if you were structured as a corporation or an LLC entity. As your business grows, so do your insurance needs, as you have more assets to protect. There’s also more chance of risk the larger you get. Insurance isn’t a “set it and forget it” type thing; as your business morphs and pivots and grows, it will become key to make sure you are adequately covered. You need to make sure that you’re working with a risk advisor who understands your business and helps you navigate what types of insurance you need as your business changes over time.
Work & Payment Requirements
To perform your work and get paid for your work, you will also need to consider what types of insurance will be required. As you start to work with larger clients, contracts will begin to require certain insurance
levels and types. This is an important fact to remember, otherwise without it; you may lose out on an opportunity to work with a new client. But you either can’t get the insurance in time or can’t afford the insurance. The most common type of insurance for contractual requirements is general liability insurance. Most client contracts will have some general liability insurance requirement. Generally, they’re looking for at least a million dollars per loss and two million in aggregate. That means that the insurance company will pay up to a million dollars for each claim and $2 million in aggregate, meaning that’s the most the insurance company will pay regardless of the number of claims during your policy period. So general liability is an important consideration to sign some contracts. Some contracts may also require professional liability and other types of coverages. As you start to work with larger clients, the insurance requirements tend to grow with it.
Types of Coverages
Often in the early stages of your business, and while you’re scaling, you’ll be forced to prioritize, insuring some risks over others. This is where a good risk advisor can become an asset. They can customize a solution for your business based on the factors mentioned above. They’ll walk you through the coverages that would be needed based on those priorities. Below are the most common coverages that pertain to the professional services industry.
Business Owner’s Policy
Starting with what is considered the foundation of all small business insurance, the business owner’s policy. The business owner’s policy, sometimes called the BOP, was designed to address small businesses’ most common losses. The business owner’s policy comprises three different types of coverages: property insurance, business interruption insurance, and general liability insurance. Insurance carriers have bundled these together for convenience, meaning you will only get one bill. You will only have one policy to manage, even though you’re getting three different coverages. Also, it’s more cost-effective to them, which means it will be more cost-effective to you when you bundle these policies together (versus buying each coverage separately). Let’s quickly touch on what each of these three coverages does for you.
Property Insurance
Property insurance covers all the obvious things. It covers the physical structures of your work environment, as well as your business’s personal property. That’s all the pieces of equipment and tools that you may use to get your job done. Nowadays, a common question revolves around remote work and whether property insurance is still needed. The answer to that is yes, you likely do. Almost every small business has some minimal amount of business assets. Unfortunately, your homeowner’s policies will only cover small amounts of business property, if any, depending on the insurance policy. So if you were to have a loss or your employees were to have a loss at their home, likely, the homeowner’s policy will not cover the vast majority of the business losses that may occur.
Business Interruption Insurance
Business interruption is the second component of the business owner’s policy. Suppose your business is forced to be entirely out of commission or partially out of commission due to an event. In that case, this type of coverage can help you recoup some of the lost revenue that you would’ve recognized had your business been open or fully operational during that time.
General Liability Insurance
general liability is the third and final component of the business owner’s policy. Often general liability is referred to as “slip and fall” coverage. That’s because it provides coverage for bodily injury to other people outside of your organization due to your negligence. A great example would be somebody coming to visit your office and slipping and falling and injuring themselves. A general liability policy would cover this instance, but it also covers instances occurring on others’ property. A good example is a consultant at a tradeshow accidentally knocking over a neighboring booth damaging the entire display. Your general liability policy would likely respond to that type of scenario as well.
Another benefit of the business owner’s policy is that insurance carriers often throw in additional coverages in areas outside of these three when you buy their business owner’s policy. It becomes advantageous when you package these three policies together into a business owner’s policy.
Professional Liability Insurance
Professional liability is a must-have for any business offering professional advice, service, or consulting. Professional liability works well in any professional services organization when paired with a general liability policy. Your general liability policy will cover you for losses associated with bodily injury and property damage; professional liability will protect you from financial losses related to the quality of your work. An example of that might be an accountant who misfiles a tax return and costs their corporate client thousands of dollars in taxes. Another great example is a consultant who offers business strategy advice. A client comes back and says that the advice you provided hurt their business and cost their business money. The reality is that anybody can try to sue you over anything, and it doesn’t matter if you did anything wrong; you’re still going to have to go to court. You’re still going to have to defend yourself. You still must pay for your legal defense. This is where professional liability shines because it’ll help you pay for the cost of defense, and it will help you pay for any damages that you’re found liable for. Professional liability is the cornerstone piece of any professional services or service-based business.
Cyber Liability Insurance
Cyber liability insurance is a set of coverages that will help protect you from cyber-attacks and other technology-related risks that almost every business faces. If you’re taking online payments, using software systems, or using email, you’re at risk. It can be costly and even paralyzing to a poorly equipped business when an attack occurs. There are also state requirements that your business must comply with when you have a cyber breach, which can also be costly. There are other scenarios like having your data held for ransom or holding a critical system hostage until you pay a fee. Cyber liability insurance has quickly become a must-have for all businesses.
Disability, Life, Health, & Personal Insurance
The least often talked about in terms of foundational coverages for service-based firms is the suite of disability, life, health, and personal insurances as a business owner. Especially in early-stage business ownership, an overwhelming amount of business generation and project completion typically falls on the business owner. You are your chief salesperson, your principal consultant, and you have a lot of responsibilities in making the business continue to generate revenue. If you were to become sick or disabled or otherwise must step away from the company for an extended amount of time, you want to make sure that you’re still able to pay your bills and that you’re able to recover comfortably. Disability insurance will help you be able to have the comfort of knowing that you’ll still have some income coming in for you and your family should something happen. Life insurances are necessary, obviously for personal reasons and taking care of your personal assets. These types of policies can help your business keep going if you were to pass away. Often health insurance is overlooked in these early stages of business. All business owners should ensure that they’re getting the proper care. To do this, you need the appropriate health insurance coverage. Now that you’re a business owner, you open yourself up to new types of risks, and they can carry over into your personal life as well. You want to make sure that your personal insurance policies are working in conjunction with your business policies to provide you with the most holistic coverages that you can have across your business and your personal life.
At InsureGood, we advocate that all your policies work together. Someone should have a view over all the insurances you have in place, who understands your business and personal life. In conjunction with the above, there are some additional coverages worth considering depending on your business situation.
Commercial Auto Insurance
If you have a vehicle that’s registered in your business’ name or owned by your business, you’re going to need also to get a commercial auto policy; the coverages and levels of insurance that you need for that commercial auto policy are going to vary by state and your circumstances. It will protect you from financial losses and bodily injuries inflicted using your vehicle and will also protect you from financial losses to your property, your vehicle, and anyone who’s driving it or passengers in your car. Lastly, do you ever have employees drive for work-related purposes? If the answer is yes, you should have a hired and non-owned auto endorsement put onto your business owner’s policy (discussed previously). If an employee were ever involved in an accident and found liable, their personal insurance policies would not cover them if they were performing work-related tasks.
The next set of coverages involves employees. If you have employees, you open yourself up to a new set of risks and challenges as you grow your team. Below are some insurances that are required when you have employees.
Workers Compensation
Workers’ compensation is a requirement in most states. Insurances may vary by state, but workers’ compensation is essential because it covers you and your employees in the event of a workplace injury or illness. It covers the cost of the medical expenses associated with the ongoing care; any long-term, disability, or funeral costs that may arise. Workers’ compensation is an essential coverage, not only to stay compliant and avoid fines but also to protect you and your employees in the event of injuries or illnesses work-related injuries or illnesses.
Employers Liability Insurance
Employers’ liability insurance is a type of insurance that will protect you and your business from financial losses if an employee sues you. Often these lawsuits involve things such as sexual discrimination, sexual harassment work, any workplace discrimination, wrongful terminations, and unfair hiring practices. Employers’ liability insurance is essential to consider when you have employees.
Product Liability Insurance
Lastly, are you also selling or distributing any products? Service-based businesses, at times, will also launch a product line of some sort. They may not be manufacturing these products, but they’re selling or distributing them, perhaps white labeling them in their company name. If so, a product liability insurance policy is likely needed. Product liability insurance will kick in and help protect you if someone says they become ill or injured due to buying or interacting with your product.
The Last Word
Insurance for your business can be as custom as you want it to be. Certain factors do tailor things down a bit, but ultimately, what coverages you want are decided by your appetite for risk.
Working with your personal InsureGood Advisor will help you build the proper insurance program for your business.
