does your coverage match your business size?
The types and amount of insurance that you need for your small business are based on several factors. Primarily: the number of employees, your total sales and annual revenue, your industry (some industries have a higher need for insurance), the State in which you live, and of course your tolerance for risk.
These days many businesses are home-based. Traditionally, however, a home-based business was defined as one with no full time employees and revenues under .5 million dollars.
Just because the business is small, doesn’t mean it shouldn’t be insured. According to the U.S. Small Business Administration (SBA), more than half of American businesses are home-based. Homeowners insurance alone will not necessarily cover your home-based business against business property loss or liability.
Do you know all of your employees by name? Does your business make less than 5 million dollars annually? Some insurers consider businesses with 50 or fewer employees to be small businesses. The SBA defines a small business concern as one that is independently owned and operated, is organized for profit, and is not dominant in its field.
A common small business policy—called a BOP, for “Business Owners Policy”—is usually available only for businesses with fewer than 100 employees and revenues of up to about $5 million or less. While you can purchase customized insurance to cover your specific type of business, insurers offer standardized small business policies that enable you to affordably protect your company against the most common risks.
If your small business is growing and thriving, you may have graduated into a medium-sized company. Again, definitions of business sizes vary, but if your company has between 50 and 1,000 employees with annual revenues between $10 million and $1 billion, you can seek insurance as a medium-sized business. Insurers have special policies designed specifically for this segment that may combine property and liability coverage. If your medium-sized business owns especially expensive equipment or has locations in more than one state, you may also want to seek special customized policies.
Large businesses have at least 500 employees; revenue requirements are dependent on the type of business.
Large, complex businesses have multi-million dollar risks, and commercial insurance is customized to meet a company’s specific needs. Large companies even have employees dedicated to analyzing the potential causes of accidents or loss, recommending and implementing preventive measures, and devising plans to minimize costs and damage should a loss occur, including the purchase of insurance and managing claims. This practice is known as risk management. If you run a small business, you generally have to act as your own risk manager. Sometimes a small business will hire a risk management consultant. If you’re unsure, ask an insurance professional to help assess the risk for businesses of all sizes.