Importance of Business Insurance

The economy is gradually recovering from the pandemic, but there are still many business owners that are facing difficulties. This is due to the fact that other than sales; businesses are still exposed to various types of property and liability risks.

In fact, these risks can be more threatening than losses from poor sales. What may start from a small property damage or bodily injury accident may lead to lawsuits. Depending on the outcome, this can cause great financial hit to a business.

Major corporate companies separately hire risk management specialists to identify the risks in advance and come up with strategies to minimize the risks. However, the reality for small business owners is that they must juggle all the various roles from a chief executive to human resources.

Occupied with all the roles, it becomes difficult for you to identify and respond to underlying risks. The cost of purchasing insurance may also come as daunting.

Therefore, it is very important to mitigate the risk of accidents by obtaining business insurance. Below are answers to the most commonly asked questions.

Q) Shouldn’t insurance premiums go down when business is difficult due to the economic recession?

This is what most policyholders want. However, in reality, the more difficult the economy is, the higher the probability of accidents.  Therefore, insurance premiums tend increase when the economy is bad.

Q) Why must I have business insurance when business is already difficult?

If your business is already having financial difficulty, getting involved in an accident result in a bigger damage to your business.

Without any insurance you are taking needless risks on your own. Not having the proper coverage is also an issue.  Even if you receive compensation, it may be less than the actual amount of damage.

Therefore, it is recommended that you consult an agent and purchase a business insurance that can protect your business and your inventory (your property).

Another reason to have a business insurance in place is due to the fact that some states require insurance coverage, regardless of the size of the business.

A majority of commercial building or office building owners also require its tenants to maintain insurance through rental contracts.

Q) Does insurance coverage differ depending on the size of your business?

The essential coverages for small businesses owners are business property, General liability, and business income.

Business Owner’s Policy (BOP) is an insurance product that targets small business with the above coverages combined.

Each insurance company offers different coverage types depending on the business class. Therefore, it is important to check which coverages best suit your business.

If you run a big business, Business Package Policy (BPP) would be a better match. This product offers more customizable options by allowing you to add various coverages in addition to property and liability.

One important fact to note is that neither BOP nor BPP policies offer flood coverage. This is a type of coverage where a separate product must be purchased.

Q) What are the main factors that determine commercial building insurance?

One of the most important factors is the building’s exposure to fire hazards. Well-maintained buildings with fire preventive measures have a lower premium than those that are not.

For example, a building with explosive manufacturing will have a higher premium compared to a travel agency office.

There are many variables used to calculate the fire risk rate. Among them, building materials and construction types account for the largest portion.

Fire hazard ratings are determined through state-licensed inspectors.

They typically sign contracts with insurance companies to rate buildings’ structures. Below are five standardized rating systems that determine fire hazard ratings:

-Construction Materials

-Location

-Occupancy

– Fire Protection Measures

– Exposure

Q) How does claim histories affect insurance premiums?

Business insurance has a different premium rate system compared to auto insurance. In other words, the premium is not increased based on a predetermined formula like auto insurance.

Each insurance company has different guidelines but, frequent claims or large payout amounts may lead insurance premiums to increase. In some cases, an insurance company may decide to non-renew your policy.