May 6, 2015

Tiny Business Insurance

What is Tiny Business Insurance?

Is Tiny Business Insurance Real?

How do I know if I need tiny business insurance?

If you are new to the world of entrepreneurship, you may not have heard of small business insurance.   Most likely you have been told you need to think about incorporation and that you need insurance, not knowing what exactly that meant.

How it begins:

You set up shop out of your home, buy a few domain names, find a hosting company, write some code and wammo your website is up and running.   Do you need insurance now?

Next you set up an LLC or an S Corp, complete with an EIN (Employer Identification Number) Number and a brand new business bank account.  Now should you get insurance?

Your old boss, sends you a potential client and you set up a meeting.  After the meeting the prospect says she is interested and wants to speak further, but first would you send over some preliminary numbers.   Now… should you think about insurance?

A new phone line arrives in the mail and now you feel like a real corporation.  Your first check for payment of some basic services arrives and the bills are arriving as well.  Now you really feel like you should have insurance … but what kind of insurance does your one man operation need?

“Now you really feel like you should have insurance…”

A friend of yours tells you that you should be covered under your homeowners policy, so you put it off, you even put off calling your insurance agent to speak with them.  Are you covered under your homeowners insurance policy for the incorporated business that you started out of your home?   (For the record the answer is almost certainly no.)  When you do reach out to your homeowners insurance agent they mutter that you are probably not…but will get back to you in good time.  Time goes by, one week, then two, you follow up with the agent who seems a bit bewildered and this time,but  clearly says that you and your micro corporation have essentially no insurance.  Now should you look at business insurance?

Why should you look at business insurance if your business is worth very little if any money?  For one you ‘can’ put your personal assets at stake with your business.  Although you are set up as a corporation, which can serve to protect you in certain situations, it will not protect you from everything.  For the record, nor will business insurance protect you from everything.  A second reason is piece of mind, doesn’t it bother you if you are not insured.  Another consideration is regulation, are you required to have some form of insurance to do your business legally?   A last pitch I suggest to clients is: Don’t you always want to hire people for service that are insured and in some cases bonded?  Why wouldn’t you yourself get insured…

Characteristics of a Tiny Business:

All of these characteristics fit what I commonly call the Tiny Business Owner:  Work from home, One man (woman) operation, Start Up, Never had business insurance before, either Newly Incorporated or Not Incorporated, Low Revenue, Misunderstanding of need for business insurance.    What kind of insurance does the tiny business owner need? They need a Tiny Business Insurance Policy.  One that fits the needs of this owner.

Lets first deal with the misunderstanding involving the homeowners insurance covering your small business.  There is a slight possibility that you ‘may’ have coverage, but in general terms you will not have business insurance coverage.  You may have coverage if it is an incidental business AND your insurance company approves it.  Once you do it semi full time, once you create a website, and once you incorporate – you will probably not be insured.  What do to… the first thing you should do or try is to contact your current homeowners insurance company and see if they will write the insurance as an add to your home policy as an endorsement.  Unfortunately for most, homeowners insurance probably will not take you, and what coverage they do offer will be minor.  To read more on this subject, consider reading Insuring a One Woman Operation from your Home.

If you receive a No from your home insurance company you may be a candidate for a Tiny Insurance Plan.  Typically once your homeowners policy fails you would consider getting what is sometimes called Small Business Insurance written under a Business Owners Policy or BOP for short.  Personally I find the Small Business Insurance programs marketed and incorrectly pushed to these tiny businesses.   Small Business programs are often intended for a rented Office type environments with one or two employees when they have ads in the paper and client walking in and out of the door.  The reality is that many businesses are effectively too small to really use a regular small business BOP.

“Unfortunately for most, homeowners insurance probably will not take you…”

Some of these people may qualify for tiny business insurance.  I must admit that the term tiny business insurance is a term that I made up to apply to certain work from home start ups with little if any revenue.  Not all business classes can get these insurance policies, but many of the more common work from home businesses CAN.

Your Business Class:

A business class code,(Standard Industrial Classifications -SIC or North American Industrial Classification System- NAICS), or otherwise is a national indexing process that categorizes business types into sets of digits.  Insurance companies use these class codes to mathematically denote if they will consider your business in a binary form.  In other words Insurance company A will take code 5143 but not 4156.  What matters to the business owner is just to know that there are certain classes that are much easier to find insurance homes for than others.  Insurance companies like simple to understand and time tested businesses when writing insurance.  They understand, very well, the risks that self publishers that work from home have.  They do not understand, as well, the risks from a rock musician consultant that also works from home.  If you and your startup business are in one of these simple to understand business classification codes you may be able to get a what I call a tiny business insurance policy.  More about SIC and NAIC Codes here.

Types of Insurances to consider:

When procuring insurance, a licensed broker or agent should walk you through the types of business insurance to consider.  Similar to personal lines insurance, business insurance is comprised off all manners and types of insurance.  These are just some of the insurance types to consider:

Liability Insurance – liability is the number one type of insurance that I suggest that start ups consider getting.   There is a thin line of difference that exists between Professional Liability and General Liability insurance.  Liability (also often called general liability insurance) covers such things as slip and falls claims which can be the most common.  General liability insurance may also cover your completed product.  It may not cover your completed product if the product that you produce is your service, such as Doctors, Lawyers, and Insurance Agents.

Professional Liability, if your product is your professional services, the recommendations that you make, you may need professional liability insurance and it may be more important to procure than General Liability Insurance.   Professional Liability insurance is often required for people to ‘hang out a shingle’.

Business Personal Property Insurance – items such as your work computer(s), documents, and the such may need to be insured in the event that your home (place of work) burns down.  Endorsed Homeowner policies may or may not cover a modest amount of this.

liability insurance is the first place to start

Business Interruption – Insurance for this happens most likely  if your place of business burns down and you are no longer able to do business for a time being.  This will provide cash to you in the interim while you get things back up.   This is not the first type of insurance that I would concern yourself with.

Business Auto – if you drive your car for work, certainly if the driving of your car is your work, you may need Business Auto Insurance.  Business Auto Insurance is extremely similar to Personal Auto Insurance, only it acknowledges the added dimension of driving for your job.  One should not be confused with commuting to an office in your vehicle, that is not the same thing.   Think of a real estate agent showing people properties in their car.

Workers Comp – Workers Comp is a type of no fault insurance for employees.  Since work from home start ups do not usually have employees or contractors, you may be able to wait to procure workers comp.

EPLI – Employment Practices Liability Insurance- this can cover you from suits brought against you for employment related reasons, hiring and firing and the such.  If you have no employees you may consider waiting on this.

Cyber – do you keep social security numbers and other sensitive information online?  You may want to consider buying cyber insurance or if your business is a website, it might make good sense as well.

Commercial Umbrella – Potentially sitting over most of these coverages may be a commercial umbrella insurance policy.  An umbrella policy is essentially an increase in your liability amount.

As a work from home start up  you are obviously not going to go out and buy all of these insurances at once, but it can be helpful to see the types that are available so that you are aware of what you may be protected from and what you may not be protected from.

Summation of Tiny Business Insurance:

The tiny business insurance plan may be the right insurance for your work from home start up.   Call a licensed independent agent or broker in your area, preferably one that writes business insurance in the state that you live in  given that each state has different rules and regulations and because States regulate insurance brokers and agents.   Please feel free to contact me with any questions that you may have.  Please read our disclosures and disclaimer.

Get a Tiny Business Quote Today

Scott W Johnson – 0H11625

Marindependent Insurance Services – 0K10734 – Independent Insurance in California