You decided to take the plunge into one part of the American Dream. Told your boss you need to move on, pooled your resources and opened your own business. But before you have the ribbon-cutting ceremony, there is a lot of work to do. One part of any financial security plan is insurance. This is definitely not the area to cut any corners. Still, there are a few factors that influence your premiums.
The key here is to understand how insurance companies determine premiums. The Insurance Information Institute (www.iii.org) has some good advice for every fledgling entrepreneur regarding these factors. Here is a condensed version:
Type of business — How is the business legally structured? Are you a sole proprietor or an incorporated or limited liability company (LLC)? The less you are personally liable for the better.
Location, location, location — Businesses located in high-crime areas, or in areas that are susceptible to severe weather, such as flooding or tornadoes, will pay higher rates. If you have a choice as to where to locate your business, ask your agent for several quotes for the different locations you’re considering.
Facility size and characteristics – The larger the building, the more it will cost to insure. The building material and age of the wiring, plumbing, roof, etc. is also a consideration. State-of-the-art fire alarms, sprinkler systems and proper exits can save you money.
The value of the business — When applying for Business Interruption Insurance (BI), which covers lost net profits and continuing expenses after a catastrophe, the amount of coverage and, therefore, the premium costs will be based on your estimate of the company’s future revenues and expenses.
Number and training of employees — The more workers, the higher your workers compensation premiums will be. However, providing proper job training and safety rules can help reduce the insurance costs—in many cases, a well-trained worker is less likely to have an accident.
Always sit down with your insurance professional and give them the whole story about your business plans. They are your best resource to insure you have the best coverage at a premium you can afford.