Business Insurance Buying Guide – When to Buy it and How Much Does it Cost?
Let’s face it, sometimes knowing what insurance coverage your business needs can be difficult. Beyond knowing what coverages you need, knowing the cost of said policies is also confusing. Today we will look to answer both questions.
What coverage does my business need?
What coverage does my business need depends on several factors. Guess what, so does how much each of them costs. This is precisely why we wanted to share this business insurance buying guide. Although “it depends” can be a common phrase in insurance, our goal is to get to the bottom of these common questions. To do so, we will break it down by three categories:
1. Seed Stage Emerging Growth
2. Early Stage Emerging Growth
3. Mid to Later Stage Company
Seed Stage to Emerging Growth
Seed Stage to Emerging Growth: Pre-Revenue to $5 Million
Required Coverages
- Business Owners Policy (BOP): This is usually where companies start when buying insurance for the first time and covers your General Liability (slip, trip, fall) and Property coverage. If need be, Auto coverage can also be included. This type of insurance ranges in cost from $600 – $50,000. So why the large range in price? It comes down to industry type, revenues, and the type of property that needs to be insured.
- Workers’ Compensation: Rated off payroll, class codes (the type of work an employee is performing – sales, construction, clerical, etc.), and a company’s EMOD (when applicable). Class code rates vary by state but can be as low as $0.05 per $100 of payroll to $25+ for roofers and other more hazardous work. It’s tough to put a number here as payroll varies so drastically but click here to read our blog post all about Workers’ Compensation.
Only Some Businesses Need the Following:
- Errors & Omissions Liability – This is your Professional Liability. There are a few types, but if your company is selling a product/service that could cause financial or bodily harm to someone, you will need this.
If your company sells software for example and therefore could cause financial damage to a client if your product does not respond as promised, you need this. Often, this is bundled with Cyber insurance (see below). The premium will depend on revenue, product/services being offered, risk transfer via your contracts, etc.
Pricing: The price range for this coverage is $1,000 – $10,000+ for the first million dollars.
- Cyber Liability – I’d like to put this in the section above, as every company should be buying Cyber, but it’s not always required. According to Security Boulevard, there were more cyber attacks in the first half of 2020 than in all of 2019. Non-Tech companies won’t need E&O, but should strongly consider buying this. Bang for your buck, this policy is a no brainer. (See HERE for a more detailed dive into cyber insurance). Its intent is to protect you against the following scenarios:
- Network Security – both 1st and 3rd party related threats
- Unauthorized access, the transmission of virus or malicious code, theft/destruction of data, cyber extortion, crisis management, customer suits, business interruption, etc
- Privacy – again both 1st and 3rd party related threats
- PII/PHI data exposed by:
- Hacker, Lost Device, Rouge Employee, Physical Records
- If a Breach occurs, everything that would follow – Breach coach, forensics, attorneys, notification costs to remedy affected individuals, PR, call center, etc.
- PII/PHI data exposed by:
- Ransomware
- Services – Most policies come with free, or heavily discounted, Cyber resources to help companies secure their Cyber Infrastructure (remember what I said about bang for your buck)
- Network Security – both 1st and 3rd party related threats
Pricing: $750 – $7,500 for the first million dollars of coverage
You can read our blog post on Ten Safety Tips for cyber security while working from home here.
- Umbrella Coverage – Depending on contract requirements or the type of product you sell, you may need/want to increase your limits. Often this coverage will “sit on top of,” or extend limits above the General Liability, Auto, Employee Benefits Liability, International and Employers Liability. Pricing: $1,000 – $5,000 for the first million dollars of coverage.
- Product Liability – Coverage if your company sells/produces a product that could hurt someone. Depending on your carrier, they may be willing to include this coverage with your General Liability coverage. If the product is considered a higher hazard, you may need to place the policy standalone Pricing: $2,500+ for the first million dollars of coverage.
- International Coverage – Useful if your company requires that you travel abroad. These policies can be broad and offer the following coverages (not exhaustive)
- Foreign Voluntary Workers’ Compensation, General Liability, Kidnap and Ransom, Travel Accident and Sickness, Crime
- Pricing: $2,500+
Early Stage – Emerging Growth
Early Stage – Emerging Growth: Revenues $5 – $25+ Million
Growth is what every company is striving for. As you grow and inevitably change, different needs arise. This is the same when it comes to your insurance and risk management needs. These coverages may or may not be required – but all are definitely worthy of your consideration.
- Director and Officer’s Liability (D&O) – Raising capital? Are you thinking of raising capital? Do you have a Board of Directors? If you answer ‘yes’ to any of these questions, this is good coverage to have in place. D&O looks to insure your company, you, your board members/directors against suits against the company and individuals. Pricing: $2,500 – $20,000+ for the first million dollars of coverage.
- Employment Practices Liability (EPL) – Often times this is bundled with your D&O insurance. EPL provides coverage for wrongful termination, discrimination, harassment, failure to promote, etc. It is rated off employee count, as well as other factors, such as if you have Policies and Procedures in place to deal with employment-related issues. We’ve seen significant premium & deductible increases as of late, due to increased claims activity and legislation (see CA and other states). Pricing: It is difficult to put a number here, as it varies so drastically, depending on EE count.
- Crime – Covers 1st and 3rd party theft-related events. Pricing: Premium starts at $1,500.
- Cargo / Stock Throughput – This line of coverage could go in the first section, however, it’s more likely to be found here. Are you shipping products from overseas? Many times, companies pay UPS/FedEx to insure the product while it’s in transit. There’s a better, cheaper option! Paying an insurance carrier to insure the product is an added profit center for them. Instead, look to a Cargo policy to insure these products while in transit. These policies have the ability to insure the product at cost or selling price. Pricing: Starts at $1,500.
Mid to Later Stage Companies
At this point, your insurance program has hopefully been thoughtfully put together and implemented. In looking at this business insurance buying guide, you should already be familiar with many listed. Previously placed coverages should be reviewed and tweaked with your broker on a regular basis to maintain best in class coverage.
Coverages in this section will focus on addressing specific needs such as Credit Insurance, Standalone Property, Product Recall, Captives and Parametric Coverage
- Credit Insurance – How are your Account Receivables doing? Do you have customers that slow pay or that you constantly have to follow up with? How much bad risk are your writing off each year? Credit insurance insures against these types of risks.
In addition, this insurance can be used as a sales expansion technique. Empower your sales team to extend credit to customers/prospects when certain criteria are met.
Pricing: The minimum premium is usually around $25,000
- Standalone Property – As you grow, your Property needs could expand where it’s necessary to write the coverage standalone. We often see this with companies who have large Business Personal Property schedule, own buildings, are in CAT prone areas, need dedicated Earth Movement / Flood limits etc.
- Captives – Like many of these coverages, Captives could/should be it’s own blog post. Suffice it to say that companies that meet the following criteria should heavily consider this option 1) Are a safe company (low claims, good safety controls in place) 2) Pay at least $150,000 in premium for their Workers’ Compensation General Liability and/or Auto.
Joining a Captive is essentially betting on yourself as a company. You take more responsibility for your claims but the reward is getting some of those insurance dollars back in your pocket down the road. Instead of mailing those checks to the insurance company, never to see them again, you have the opportunity to see some of them return. This is a very powerful risk management tool that is gaining a lot of traction.
Pricing: Contact your broker for more information on costs
- Parametric Coverage – Alternative to Earth Movement coverage. This coverage insures against the occurrence of a specific event by paying a set amount based on the intensity of a quake, verified by a 3rd party. A payout is then issued within 30 days. You are required to confirm proof of loss within a year. This is a different approach but for companies that have a property in earthquake-prone areas, it’s worth considering.
- Pricing: Premium usually starts around $125,000
Business Insurance Buying Guide Questions
In conclusion, this is our Business Insurance Buying Guide. If you have questions about specific questions, please do not hesitate to contact Diversified. If you would like more information about Diversified Insurance Group, go here. We would love to look at your business and help find the right customized solutions.