Are you one of the 16 million Americans who is self-employed?
A recent report showed that of the 16 million Americans who are self-employed, an additional 24 million Americans work for those people. Together that accounts for 30% of the nation’s workforce. With 30% of the nation’s workforce depending on the self-employed, protecting the business and the livelihoods of all involved means that insurance protection is critical. Yet it is estimated that approximately 40% of small businesses don't have insurance coverage!
Insurance is one of the best ways to protect your business as it transfers many risks from you to your insurance carrier. Claims happen more frequently than people realize and the longer your business is closed, the harder it is to reopen. After facing a disaster, FEMA estimates that 40% of businesses won't reopen. Don’t let that happen to you and the business you worked so hard to build!
Get the Best Insurance While Self-Employed
1. Don’t Go It Alone
Yes, you can get insurance coverage online, but there is a better way! Find an independent insurance agent who you feel listens to your concerns, asks questions, and seeks to understand what you are doing and what worries keep you up at night. An independent agent works directly with multiple carriers to shop coverage on your behalf instead of having to call around and repeat the same information over and over.
Find an agent who specializes in business insurance, but one that also has personal insurance options too. You may be able to start your business with an add-on to your home insurance, but as your business grows, your agent will be able to help you understand if a change to your current policy needs to be made. Asking around to other business owners you trust, or others in your industry is a common way to begin the process of selecting an agent.
2. Home-Based Businesses Beware!
Many self-employed people do not have an outside physical location and operate from their home. You probably have homeowners' insurance, but did you know that does not protect your business?
Some home insurance companies have created in-home business endorsements to add on to an existing home insurance policy. This is an inexpensive option and is great for a sole proprietor business with no employees, a small amount of physical property, and no customers who are coming in to the home. Coverage varies significantly by insurance company.
However, if you have established a separate business entity (LLC, Corporation, etc.), this endorsement typically won't be available as home insurance coverage is designed to protect you personally, but not your business.
If that is the case, you will want to get a Business Insurance policy often referred to as a Business Owners Policy (or BOP), it has three main features:
- Provides protection for your Building and/or Business Property (Property),
- Provides protection for injury or damage to others (General Liability), and
- Provides protection for lost income in the event of a covered loss (Business Income).
The value of property and degree of risk in your industry can affect the type and pricing of coverage needed. But, if you understand the risks associated with your business in those three aspects, you are ahead of the game and ready for the next step.
3. Be Ready for the Conversation With Your Agent
It takes a little work on your part to gather up the information to have a productive conversation with your agent, but if you can get the information below, it is a great start:
- Employee Identification Number
- Estimated annual sales
- Estimated annual payroll and number of employees
- Estimated annual subcontractor costs
- Estimated value of Business Personal Property (your "stuff")
- Estimated value of property you take off the premises (in-vehicle, to client meetings, etc.)
- For any physical location:
- Copy of the lease (if applicable)
- Square footage you rent and total building square footage
- Update years of Roof, HVAC system, Electric & Plumbing
- Number of stories
- Building construction
- Protection (fire & burglary alarm, sprinklers, etc.)
- Copy of sub-contractor agreement
- List of any additional insureds and specific wording required in the contracts
4. Price Isn't Everything
Both you and your agent want an affordable insurance product, but protecting the livelihood of your business is where the focus should be. When your agent offers you additional coverages, ask them to explain what you don’t understand, and ask what risks they could potentially see or have seen in your industry. You don’t have to proceed with every option, but take the time to have that conversation so that you can make an informed decision.
A little more about premium...
Many insurance carriers have a minimum premium (most are around $500 annually). If this is the case for your policy, sometimes additional coverages can be added in and still come in at that minimum premium mark. If the premium exceeds the minimum, sometimes the agent has credit they can apply to reduce the premium slightly if certain criteria is met. Ask if that is an option or if any additional credits are available. For example, some companies give additional discounts for having life insurance, so that may be of interest to you to at least have that conversation.
5. Review Your Coverage With Your Agent Annually
Businesses change year to year and you want to make sure your coverage remains up to date. Sometimes businesses change in record pace, as the 2020 pandemic and lockdown has shown us!
If you add new products, offerings, or services, be sure to reach out to your agent and discuss potential issues. Even better if you reach out to talk with your agent before making the change and they can help you head off any potential insurance issues before implementation!
Bonus tip! Be sure your website shows what you are actually doing. Underwriters will review your website and can decline businesses due to advertised services that haven't been done in years or services you're potentially considering in the future.
There are many other coverages you may need to round out comprehensive insurance protection for your business. Below are some of the most common recommendations for a self-employed business, but it is far from an all-encompassing list.
- Cyber Coverage – almost every business uses computers, internet services, credit card processing, etc. - the more you use computers and the internet, the greater the risk of a security breach.
- Commercial Auto Insurance – even if you don’t own company vehicles, there are coverages that protect your business while driving a personal vehicle for work purposes.
- Workers Compensation – don’t assume that if you don’t have employees you don't need it, this could still be an issue. Some states require Workers Compensation for self-employed businesses and 1099 contractors can actually count as employees depending on the state and duties they perform.
- Professional Liability – if your professional opinion is part of the service you offer, you can be liable if that opinion is alleged to be inaccurate.
- Employment Practices Liability – as you add employees the risk of allegations of unfair treatment increases.
- Employee Benefits Liability – if you are offering medical benefits to your employees and make a mistake, this can protect you from a lawsuit.
- Umbrella/ Excess Liability – additional coverage limits for more protection on top of what the General Liability offers.
If 2020 has shown us anything it is that the unpredictable can happen. Working with an agent you trust and having the correct coverage is the best way to ensure that you are protecting the business you've worked so hard to build.