How to Prepare a Business Insurance Budget

Let’s examine six ways to budget the right amount of insurance coverage for your business, without going broke paying premiums.

1. How much do you need to meet contract obligations?

If you bid on work and won the contract you may have contractual obligations that require a particular insurance, or certain limits of coverage. Failure to provide insurance can forfeit your contract, so this should be a priority for your budget. However, you may want to do some business intelligence,and find out where your contract competitors are buying their insurance. If you can save a few hundred or thousands of dollars, you may be much more competitive in future bids.

You may also belong to a profession that mandates professional liability insurance or malpractice protection. Many association affiliated with your professional offer insurance programs that will offer lower premium cost.

2. Government required insurance.

Federal, state, and local government regulations may require you to provide insurance protection for employees, vehicles, and for liability issues. These types of insurance programs are pretty standard with premium cost, and are not optional unless you want to get slapped with heavy fines.

3. Protect vital assets.

What assets will your business need to continue operations? This is not factoring in all the extras, such as an auxiliary warehouse that you use for overflow. You need to think contingency planning and a bare bones operation. The assets that if lost, would mean your business would shut down and must be replaced, with insurance funding.

Not only should key assets be protected with the best policy protection , but you need a company with excellent claims service also. You can’t afford to hold up operations waiting for money to replace lost assets.

4. Protect your key people and locations.

Your company officers,key producers and business locations need to be protected, and so does the company profits if you suffer a loss. Life insurance on partners, will buyout the partnership contract from the family and protect the company from estate disputes. Disability benefits on key employees can replace lost income for your business while the employee is out of action.

Disruption coverage can protect your business in the event roadwork, strikes, or foreign trade disputes, halt your business activity. This is coverage for the issues that impact your business that you have no control over, and probably didn’t factor in your business plan.

5. Protect your customers.

Your business may be at risk to liability lawsuits for defective products, or potential injury to customers. Even a business that prides itself on quality work and material can be named in a product liability lawsuit. Defective Chinese sheetrock, and dog food put many American business owners on the wrong side of a lawsuit. One lawsuit could put you out of business, so shield your business from court action.

6. All the extras.

Once you have the basics covered you should then factor in all the extra assets, benefits, and the “what ifs”, that may impact business operations. As a standard rule you should budget 20 to 30 percent of your revenue as a guideline for insurance premiums. However, let insurance companies compete for your business,and raise deductibles to keep your premium payments low.