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Things to Consider When Purchasing Small Business Insurance
Editorial Team - Nov 24 - 9 min. read
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Purchasing small business or SME insurance requires the buyer to consider various factors such as the type of insurance plan, coverage, premium, deductibles, and so on.
Running your own business is undoubtedly one of the most lucrative ways to make money. However, we can not ignore the fact that operating a small business or startup has its fair share of risks and liabilities.
SME insurance comes to your rescue here. With small business insurance, you can now safeguard your revenue generation and investments against unforeseen events. Simply put, SME insurance offers you financial protection in the face of an unforeseen accident such as theft, fire, worker compensation, property damage, and so on.
However, with a wide range of insurance policies, choosing the right small business insurance can be very challenging.
This blog will discuss some of the most important things to consider when choosing SME insurance to help you make the right decision.
Let us begin!
What is Small Business Insurance and Why Do You Need It?
Every business, small or well-established, is prone to certain risks and losses. However, when it comes to dealing with such losses, small businesses and startups struggle more as compared to others. The most obvious reason behind this is the lack of enough money to compensate for the losses. At this point, SME insurance becomes indispensable.
Small business insurance is a type of insurance that is designed to protect the income, assets, and property of a small business from certain unforeseen risks. Depending on the type of policy, this type of insurance offers coverage for potential losses caused due to accidents, natural disasters, and man-made disasters. Thus, it offers the necessary financial support to deal with unexpected losses.
10 Tips to Consider Before You Buy Small Business Insurance
Following are the most effective small business insurance tips that will help you select the right policy to safeguard your business:
Identify the Type of Insurance
Before even searching for the best insurance plan and provider, take your time to identify the right type of insurance you need for your small business.
There are many types of insurance, such as commercial property insurance, general liability insurance, business owner’s policy, cyber insurance, and many more. Depending on your requirements, you can consider buying the most suitable insurance.
Understand Legal Requirements
Sometimes, purchasing insurance for your small business becomes a necessity rather than an investment. You may be legally required to have a certain type of coverage based on factors like your state, industry, and clients.
For instance, if you are using a rented workspace, your landlord may require you to purchase a general liability policy to protect your property from any potential damage.
Consider Industry Risk
Every business industry is different, and so are the risks associated with your small business operating in a particular industry. For example, a small restaurant owner needs to worry about being sued if a customer feels sick after eating a meal.
On the other hand, a tech startup should be concerned about potential data loss due to cyber-attacks. Once you are aware of the potential risks in your industry, you can purchase suitable insurance accordingly.
Check the Premiums
Managing day-to-day finances is one of the most challenging tasks for a small business owner. You do not want to purchase an insurance policy that comes with hefty premiums capable of destroying your budget. So, before finalising a small business insurance scheme, make sure that its premiums are within your budget and requirements.
Check Deductibles
Deductibles refer to the amount which you need to pay out of your pocket before a policy offers coverage for a loss. Once deductibles are paid, the insurance company comes forward and pays the remaining amount.
Overestimate Your Insurance Needs
It is always recommended to overestimate your insurance needs to optimise your financial savings. This is because if you face a bigger loss than what you have anticipated while buying insurance, you will have to pay the exceeding amount from your savings.
For instance, suppose you buy SME insurance worth ₹5 lakh. After a few months, you suffer a loss worth ₹8 lakh due to fire. In this case, your insurance company will only provide you with coverage of ₹5 lakh, and you will have to pay the remaining ₹3 lakh from your wallet.
This situation could have been easily avoided if you had purchased insurance with ₹10 lakh worth of coverage. However, keep a check on the policy premiums here to ensure they are within your budget.
Work with a Reliable Insurance Provider
Thousands of insurance providers are out there luring their prospects with cheap premiums and unrealistic financial coverage. Do not fall prey to such marketing tactics, and go with an insurance partner who is reliable and trusted and offers a guaranteed claims settlement process. A good idea is to go through testimonials from previous customers and perform due diligence on your selected insurance providers.
Read Terms & Conditions Carefully
Not understanding the policy documents can be a very expensive mistake in the case of small business insurance. The reason is simple: each insurance policy is different and offers coverage under certain conditions.
If you avoid checking those conditions, your claim might get rejected if you raise it for a condition that is labelled under the policy’s exclusions. Always read the policy documents thoroughly and understand each term and condition with an open mind. This will help you avoid any confusion and disagreement at the time of claim settlement.
Do Not Let Price be Your Guide
Cost plays an important role in decision-making in a small business. However, purchasing insurance is an aspect that its price should not dictate. Always select a policy based on its features and coverage rather than buying the cheapest scheme that comes your way.
In most cases, the so-called “cheap insurance policies” do more harm than good to the policyholders. They keep extracting money from clients till the tenure and then stop responding when it comes to settling the claims. Therefore, avoid making your purchase decision solely on its price.
Do Not Forget to Get Yourself Insured
Many small business owners buy the best insurance schemes for their businesses but forget to insure themselves. Remember, you are the lifeline of your business. Your business needs you more than you need your business. So, always get yourself insured along with your business.
Final Thoughts
Every business involves a degree of risk. However, this degree is slightly higher for small businesses as they are still in their development stages. For this reason, purchasing the right small business insurance is critical for every small business owner. You must consider several crucial things when buying SME insurance, like the kind of insurance, policy premium, insurer’s reputation, policy terms, and more.
