As a small business owner, you take on a certain number of risks. Are you a personal trainer? Your clients might get injured. An accountant? You’re only human, and might make a human accounting error. A plumber? You might hit a water line and damage your client’s property. Unfortunately, we are all only human, and no matter what you do, there are various opportunities for risk.
While there are known risks related to your line of work, there are also always unknown, unanticipated risks: a tree could fall onto your company vehicle, or a vandal might spray-paint every piece of furniture in your office suite. Knowing these are not unusual scenarios, you may be wondering how does risk management relate to insurance?
Your business’ risks are a main factor in your insurance rate. So what can you do to manage them? Below, we’ll explain how risk affects your insurance rate, and what you can do to take control of it.
Insurance & risk management
The insurance industry functions by calculating risk. Depending on your insurer, things that affect your business’ risk might include:
- The industry your business operates in
- Your geographic area/ZIP code (property values, crime rates, and more)
- Your crew size/number of employees
- Past claims filed against your business
- Your annual income
- Your desired policy coverage length
- The deductible you select
Business operations with more risks are likely to pay higher rates, since it’s more likely that a claim will be filed. However, you can still take steps to reduce your risks as well as find a good insurance rate.
Managing your risk
When you take out insurance for your small business, it’s a means of protecting yourself in the face of potential client or third-party claims against you.
What situations does small business insurance usually cover? It depends on your industry and what kind of insurance you take out. To protect your small business, you’ll usually want to consider two kinds of insurance: general liability insurance and professional liability insurance.
General liability insurance
Is there any chance that a client or third party could be injured or have their property damaged while you’re doing business? In some lines of business, the answer is obviously yes; if you’re a Taekwondo instructor, someone could easily get hurt in your class. Likewise, if you run a furniture repair shop, you could accidentally scratch an antique table while refinishing the wood. In scenarios like these, you could end up responsible for your client’s medical bills or the cost of replacing their property.
However, you should also think creatively about your business’ risk. If you operate out of a physical storefront or workspace, you could be held liable if someone trips over an out-of-place stool. If there’s any potential for such an incident, protect your company’s assets with general liability insurance.
Professional liability insurance
While general liability insurance helps you avoid the risks of bodily injury, property damage, and medical costs, professional liability insurance provides coverage against errors and omissions that lead your client to lose money. This could include:
- Mistakes made doing work for a client
- Failure to uphold a contract
- Non-delivery of services
Do you give advice to your clients? If so, you likely need professional liability insurance in addition to your general liability insurance.
Lowering your risk
Once you’ve determined what kind of insurance coverage you need based on your business’s risks, you can shop for insurance quotes. Some insurance agents will want to set up a phone call to make a calculation about your business’s risk portfolio. They may want to make sure you’ve taken the following steps to reduce your risk:
- Assessed your own risk
- Modernized your office space, including electrical equipment and fire safety plans
- Installed smoke detectors
- Created an employee training program to avoid and deal with accidents
- Inspected and updated any hazardous equipment or machinery
Choosing a coverage limit
Once your insurance company has calculated your risk, they will allow you to select a coverage limit. A coverage limit is the maximum amount your insurer will pay out to cover claims of injuries, property damage, or medical costs (in the case of general liability insurance) and errors and omissions (in the case of professional liability insurance).
To choose your coverage limit, consider the amount you’d like to be insured against. How much risk are you willing to take on?
Thimble, for example, offers two coverage limits: $1 million or $2 million.
With a $1 million limit on your general liability insurance policy, you’ll have significant coverage in the event of client or third-party claims against your business. However, to decrease the risk of loss in the event of bigger claims, you can select a $2 million limit for even stronger insurance coverage at a value price.
Considering your deductible
Besides offering different coverage limits, insurers also allow small businesses to share risk by selecting their deductible.
What is a deductible? A deductible is the amount you must pay out-of-pocket before your insurance kicks in. For example, if you’re a dry cleaner who’s just ruined a designer coat and the owner has filed a successful claim for $8,000, you might find yourself paying some of that financial cost even if you have insurance.
- If your deductible is $500, you would pay that amount before your insurer paid the additional $7,500.
- If your deductible is $1000, you would pay that out before your insurer covered the remaining $7,000.
When you choose a higher deductible, you take on more financial risk yourself. This often allows your insurer to offer you a lower premium. To lower your own risk, you might choose a lower deductible, but pay a higher premium.
Pro Tip: Your insurance premium is the total amount you will pay for your policy. So, if you have a higher deductible, you will likely pay less to have coverage in place. If you have a lower one, you’ll likely pay more.
Insurance by Thimble
Protecting your business against risk means having small business insurance. At Thimble, we believe that understanding the risk management process should be as easy as possible.
While some insurers might complete a lengthy risk assessment through phone calls and emails, you can get an instant quote from Thimble by downloading the Thimble mobile app or clicking “Get a quote.” Just enter your ZIP code, a few details about your business, your crew size, and you’ll receive a quote instantly.
In addition, with Thimble, you’ll never pay a deductible. Don’t waste your time and energy calculating your risk and choosing between policies. Select a policy limit and purchase your general liability insurance and professional liability insurance in just 60 seconds. Thimble makes it easier than ever to start managing your business’s risk.
Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.