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A Beginner's Guide to Small Business Insurance

April 29, 2019

8 min read

Find more info in less time with this small business insurance guide.


Take a second to think about what makes your small business a success. You might need a few more seconds. You work crazy hours to protect your profits, property, and people. You put a lot of weight on your shoulders, too. You take care of hiring decisions, inventory updates, legal requirements, and so much more.

We want to remove some of that weight with this beginner’s guide to small business insurance. It’s designed for owners like you who don’t have much spare time to do research. Let’s dive in!


A Beginner's Guide to Small Business Insurance


1. Business Property Insurance

Property insurance is designed to protect your business property in the event of:

  • Specified natural disasters
  • Theft
  • Fire
  • Certain kinds of water damage

Computers, inventory, equipment, and even income loss may be covered under business property insurance.

If you lease or rent your business property, your agreement should clearly describe your insurance obligations. This may sound unfair, but your current agreement could require you to continue paying rent for a building that’s been destroyed by a disaster!

Here’s something else to consider. You’re legally responsible for your customers’ property when you take possession of it for business purposes. This applies to jewelry, electronics, and vehicles, so that’s yet another reason why business property coverage is so important.

2. General Liability Insurance

No matter how hard you try, you can’t control everything that happens at your business.

Let’s say a customer walks through the doors and trips over a box. The customer falls hard and hits his head on the floor. He sits up but doesn’t seem to know where he is. You rush over to help him. You dial 911. You take care of him until medics arrive. They load the customer onto a stretcher. You try to get his contact information as he’s wheeled to the ambulance. He’s out of it and can’t give you his name or phone number. Time passes and everything goes back to normal. Until you receive a summons to appear in court. The customer sues your business for the injuries he sustained.

This is where general liability insurance goes to work. It covers your business against claims involving bodily injuries to customers. General liability also covers:

  • Legal fees
  • Medical expenses
  • Property damage your company is responsible for

3. Professional Liability Insurance

If you aren’t familiar with professional liability insurance, you might think, “What’s the difference between this and general liability? They sound like they do the same thing.” We’re glad you asked.

Professional liability kicks in when a customer sues you for financial harm caused by your business’s alleged:

  • Errors and mistakes
  • Undelivered services
  • “Substandard” services

Keep this in mind: The definition of "substandard" comes from the suing customer and their legal representation, not us. Professional liability could be a lifesaver if you regularly give advice in fields like:

  • Accounting
  • Contracting
  • Legal
  • Real estate
  • Technology

4. Commercial Auto Insurance

You might not know if you need commercial auto insurance. That’s why we’re here! You should have commercial auto coverage if you use any of the following for your operations:

  • Delivery vehicles
  • Private passenger vehicles
  • Refrigerated vehicles
  • Utility trucks

You should consider a commercial auto policy if you or your employees use the business’s vehicles to:

  • Haul heavy tools or equipment
  • Tow trailers
  • Deliver goods or services


5. Life Insurance

Here’s a basic description of how life insurance works:

  • You pay for your policy, which is also a contract with the life insurance company.
  • The life insurance company pays your beneficiary (or beneficiaries) when you die as long as there are no exceptions to consider.

Life insurance has many great financial uses because it:

  • Provides financial security for your spouse, partner, and dependents.
  • Covers your co-signers.
  • Pays off your debt so others don’t have to.

If you have a business partner who co-signed on loans, that person is responsible for the entire debt in the event of your death. A buy-sell agreement addresses this potential dilemma. In a buy-sell agreement, owners of the business purchase life insurance policies on each other. In the event of an owner’s death, the policy’s benefit is used by the remaining owner to buy the deceased owner’s portion of the business.

A buy-sell agreement:

  • Guarantees a buyer for business assets.
  • Provides a smooth transition of ownership, management, and control to those who are going to keep the business going.
  • Can establish a value for federal estate tax purposes.
  • Spells out the terms of payment and is easily funded with life insurance.

At this point you might say, “A buy-sell agreement makes sense. But what happens if a crucial employee passes away, but that person isn't an owner?” Key Person life insurance can be used to protect your business when a top employee dies. When this happens, the business receives a cash benefit to take care of business-related needs caused by the death. You’ll have funds readily available to hire a replacement before quality and service slip.

6. Equipment Breakdown Coverage

“We can’t help you right now. A major piece of equipment stopped working.” You hate saying this to customers, just like you hate putting your revenue on hold.

Equipment breakdown coverage pays for physical damage to equipment caused by mechanical and electrical breakdown. This coverage protects against covered losses caused by:

  • Boiler damage
  • Electrical arcing
  • Motor burnout
  • Operator error
  • Power surges
  • Short circuit

Our equipment breakdown coverage pays for:

  • Repairs
  • Replacement
  • Business income
  • Expediting expenses
  • And more

7. Employee Benefits

When you research employee benefits, the number of opinions and options might leave you dizzy.

Some “experts” say you need to put a ping pong table in the break room. Others tell business owners like you to offer unlimited PTO.

Think of the following employee benefits as non-wage compensation that employees won’t have to pay for entirely on their own.

Workers Compensation
Workers Compensation typically covers medical bills, lost wages, and funeral costs for an employee after a work-related illness, injury, or death.
Workers Compensation doesn’t just cover severe injuries like broken bones, muscle tears, and sprains. It also covers:

  • Chronic injuries that form over time
  • Illnesses that develop as a result of the work environment
  • Psychological or emotional damages (depending on the state)

Under certain circumstances, Workers Compensation extends beyond your business location. Here are some examples:

  • An employee falls down the stairs at a business social event (unless alcohol played a role in the accident)
  • An employee breaks her arm in a car accident on a business trip
  • An employee suffers an injury on the way to pick up take-out food for coworkers

Short-Term Disability
Short-term disability replaces a portion of an employee’s income when a non-work injury or illness keeps them away from the job. Short-term disability supplements Workers Compensation, which only covers work-related illnesses and injuries.
If you think catastrophic injuries cause all disabilities, think again.

Fractures, sprains, and muscle strains are the fifth-leading cause of Short-term disability claims, according to Disability Happens. Pregnancies, musculoskeletal disorders, and digestive disorders are more likely to cause an employee to miss work.

Group Life Insurance
Many of your employees work to support their families. With workplace life insurance, a beneficiary receives a payment when a covered employee dies.

Your employees probably don't want to think about passing away, but life insurance helps give them comfort. It offers financial support to their loved ones during a very difficult time.

Accidental Death & Dismemberment
Accidental death and dismemberment (AD&D) pays a benefit if an accident kills or seriously injures an insured employee.
The injury payout is limited to cases that include any of the following:

  • Loss of a limb or finger
  • Loss of hearing, speech, or sight
  • Paralysis or coma

8. Business Owners Package
A business owners package (BOP) combines liability and property insurance and may include commercial auto insurance and other coverages. Like many package deals, a BOP can save you money and provide the coverage businesses need.

The Pekin Insurance Deluxe Businessowners Program (DBOP) serves small- to medium-sized businesses with competitively priced property and liability coverages under a single policy.

Your local Pekin Insurance agent is here to collaborate with you and help you find the insurance plans that work best for your business.

Contact A1 Insurance and Financial Services LLC today!

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