The obvious answer: Open your business, whether it’s a bakery, an alterations shop, a small manufacturing operation or some other venture. Right? Not so fast.
There’s a big step that must come between getting approved for a loan and flinging open your doors. You absolutely must get the right kinds of insurance coverage for your business before you start selling cupcakes or hiring employees or even having an open house.
Chances are your lender will require you demonstrate that you’re properly covered before releasing the money you need. Following are some suggestions for coverage, regardless of what type of venture you’re starting.
Commercial property insurance
Even if you’re renting your space, you still need commercial property insurance. That’s because coverage also applies to your inventory and equipment. That commercial oven you use to bake those cupcakes? It’s worth thousands of dollars. Add in your supplies, display racks, registers, computers, and all the other ingredients to cook up a success and you’ve got a huge investment that you can’t afford to lose.
Think nothing can happen to you? So did thousands of small business owners in the Northeast in fall 2012, about the time Superstorm Sandy came along. Many lost that gamble: Sandy caused $8.9 billion in insured losses involving damage to businesses, according to the Insurance Services Office (ISO).
Despite that reminder of the danger of going uninsured, fewer than 10% of small businesses have taken measures to prepare for disaster since then, according to a 2013 survey by Fedex Corp. and the American Red Cross. The kicker – the Insurance Information Institute (III) estimates that about a quarter of businesses shutter their doors after a major disaster.
Commercial property insurance also offers protection against losses due to small “disasters.” Say hail damages your windows, or fire destroys the building and its contents, or a broken water pipe soaks equipment and vital documents. Standard business property insurance typically covers the following:
- Your building
- Your inventory
- Your furniture and equipment
- Your outdoor sign
- Others’ property
The best thing is that you can tailor property coverage to your needs. Take an inventory of what will be in your location and meet with your agent to see whether you should invest in an all-risk policy or a peril-specific one.
You probably have heard by now. Home insurance policies don’t cover flooding. Neither do commercial property policies. That’s something you’ll have to get separately through the National Flood Insurance Program. One key fact: From 2008 to 2012, the average commercial claim was more than $75,000, according to the NFIP. You can’t wait until there’s a threat to buy coverage – there’s a 30-day waiting period before it goes into effect. Get more information here.
In a nutshell, liability coverage helps if you get sued. There are several types, including the following:
- General: This helps cover you if someone gets injured on your property, which makes it a must if you have customers. It also helps cover libel or slander cases.
- Product: This helps in case you make or sell a product that’s defective and causes an injury. For example, if the coffee you sell with your cupcakes burns someone, you could get help with legal costs or an award.
- Professional: This helps if you make a mistake providing services to a customer. It’s also called errors and omissions coverage.
- Employment practices: This kicks in for employment-related claims, including discrimination, harassment, and wrongful termination, among others.
Other business coverages
There are a number of other business protections you also should consider:
- If you have employees, most states require you to have workers compensation coverage.
- If you use automobiles in your business, you need commercial vehicle coverage.
- Business-interruption coverage helps if your venture must shut down temporarily because of an unexpected event.
- Data-breach coverage helps if you or an employee unwittingly cause customer information to be made public.
Obviously, that’s a lot to work through as you’re getting ready to open. Many providers offer a Business Owners Policy to combine a number of features in one package. Talk with your agent to make sure a BOP is the right decision for you.
Once you’re definitely covered, you’re one step closer to that grand opening you’ve always dreamed about.