How Much Insurance Do You Need?

After you have examined what types of insurance your business may need, it is then necessary to assess exactly how much insurance the business will need. If you have too little insurance (such as carrying only the minimum amount of liability or business property insurance as required in your state), your business is left being vulnerable. Meanwhile, if you are paying too much for a specific type of insurance that your business does not really even need, you will find that the money you are paying is getting you very little protection in return.

To determine how much insurance you will need – exceeding the minimum, but without overdoing it – ask yourself the following questions. Is the insurance in question designed to protect you in the event your property is damaged? Does the business property insurance or other insurance insulate you from the liability associated with hurting other people and their property? Know that in most policies, these two components (property damage and liability) have separate limits. If you own a small business, it is most likely a better idea to be a tad overprotected on the liability side, as opposed to the property side in terms of insurance.

If you are dealing specifically with business property insurance, you should know your lender’s limits, if applicable. For example, if a bank or other lender has provided you with a loan on the piece of property you are going to insure, then you must maintain a certain level of insurance in accordance with the loan agreement. If you do not comply, the lender can exercise the right to either foreclose or purchase its own business property insurance on the property and charge you an outrageous price for it.

With business property insurance, you should also know the value of your property. The first value is what you paid for it; and the second is what it would cost to replace the property if it was lost to theft, fire, or any other dismal circumstances. If you cannot run your business properly without the property in question, you are advised to insure the property for its replacement value. Often times, this will cost more than insuring the property for its actual value, but in certain circumstances, may be worth it.

For business liability insurance, you should know what the legal minimums in your state are. You can find this information usually online, or you can ask your agent or state insurance commissioner. While doing this research, you should also check to see whether these limits are higher depending on the type of business you conduct, or if you are required to have greater coverage to do business with the state.

Also for liability insurance, it is imperative that you know your business. You must look at the structure of your business. If it is incorporated, and you follow all the rules of running your business as a corporation, you can likely buy insurance with lower limits. However, if you are a sole proprietorship, you typically need more liability insurance because you could be held personally responsible for any judgments made against your business. Another advantage to knowing your business is being able to accurately assess how likely it is that you, someone else, or someone else’s property could be damaged or hurt in the routine course of your business.

Lastly, with liability insurance, know the people involved in your business. This includes you, as well as your employees. Does your business consist of highly skilled professionals with years of experience in the field, or high school aged children? Are you, or any of your employees, prone to accidents? Consider all of these factors when purchasing business liability insurance. Basically, if you are prone to trouble, plan for trouble.

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