business insuranceNo matter what type of business you start or creative idea you have there are risks involved.  Once your idea or company becomes a reality and begins to grow risks and liabilities are soon to follow.   Some risks are evident and some aren’t realized until a claim is filed.  Now, this article is not written to scare everyone into buying a product that says, a certain company will indemnify you in the case of a loss.  This article is to show you 5 easy tips to think about before purchasing insurance.  You spend days, months, and years developing a business plan on how you want to grow.  Shouldn’t you have a plan on how you want to purchase the line item that usually accounts for your third highest expense behind payroll and rent?

After meeting with clients a lot of them say “Well, now I can sleep well at night.”  Insurance should not be like taking NyQuil before you go to bed.  It should be a business decision that is made in order to protect a company.  Obviously, insurance is not made to protect a company from every possible disaster, although that would be ideal.  It is bought to reasonably protect a company in the case of a loss.

So now, what should you think about before purchasing insurance with your broker…

What Risks do I have?

Don’t just buy the insurance for the sake of having insurance.  Make sure you are buying the correct coverage and know what it covers!  For example, if your company is a website, you most likely have cyber liability exposure.  Make sure you make a list of potential exposures with your broker and go over them one by one.  Transferring the risk by using insurance, self insuring, or contracting a job out are all ways to manage risk.

Is Cash Flow an issue?

Every start up encounters the issues of cash flow; if not, then you’re certainly in the bonus.  From a cash flow perspective insurance can be devastating.  The good news is there are ways to choose which coverage you need now and which can wait until the liability grows.  This will help you keep the premium down until it’s time to buy the rest of the coverage.

Which Insurance Companies are interested in my risk?

You want to make sure you aren’t just going with the cheapest premium quote.  Yes, it’s good to shop different insurance companies and make sure you are getting the most competitive price for the best coverage, but you also want to look at the carrier.  Each carrier is given an AM Best rating.  Anything from A++ to A- is sufficient.  This speaks towards the financial liquidity of the insurance carrier which comes into effect when claims need to be paid.

What Exclusions should I be aware of?

In terms of your basic business owner’s policy, it is most likely written on a Special Loss Form.  Make sure you review and understand the exclusions because if it’s excluded, then what are you buying?  When you are dealing with specialty coverage such as Directors and Officers, Employment Practices, or Professional Liability it is important to make sure that there are not any important exclusions listed in the policy.  Of course insurance can’t cover everything, but you want to make sure its covering your main exposures.

How do I pick my insurance professional?

In any aspect of your company doing business with people you like and trust is ideal.  The same should be the case when choosing an insurance professional.  Whether you go with a direct writer or a broker, it is important to have trust.  It also helps to try and find someone that is staying current with the topics of the given industry.  Most insurance professionals have a specialty.  Discovering their specialty and understanding their knowledge in the given industry is important.

Insurance is a fairly easy concept of how to transfer risk.  The problem occurs when the business owner does not truly know and understand what they are purchasing.  These 5 questions won’t solidify the correct insurance, but it will certainly guide you in the right direction.

Scott Lieber works for an insurance brokerage firm called Associated Agencies in Chicago IL.  He specializes in property and casualty insurance, workers compensation, professional liability insurance and employee benefits. You can email Scott with questions