An entrepreneur’s guide to insurance

By Robyn A. Friedman   

When David and Patricia Watkins started their mobile pet vaccination clinic, Pet Shots Cheap, about 18 months ago, they knew they needed insurance. So the Jacksonville-based entrepreneurs sat down with a local agent, who sold them liability and workers’ compensation policies.

Two days later, the agent called to say their application for insurance had been denied.

“We were really concerned because without insurance we couldn’t work,” said David. “And because the company was already insuring our competition, we were wondering what the real issue for the denial was.”

Rather than give up, the couple sought advice from the Small Business Development Center (SBDC) at the University of North Florida, where they were referred to another agent, who successfully obtained insurance for the fledgling venture.

The Watkins’ experience is not unusual. Many small business owners face challenges in procuring the proper insurance coverage for their companies. For some, it’s because they’re unfamiliar with the types of insurance they should have or the policy limits necessary to adequately protect them.

Others, particularly those with home-based businesses, may be underinsured. According to Independent Insurance Agents of America, 40 percent of home workers are underinsured because they believe—incorrectly—that their homeowners policy covers their business operations.

“Many entrepreneurs don’t understand insurance because they are intimidated by it,” said Vicky M. Zelen, president of Zelen Risk Solutions Inc. in Jacksonville. “Coverage forms are complicated and somewhat difficult to understand without a law degree.”

From the beginning

Most small businesses should have the following types of insurance in place from day one:

Property coverage. Commercial property insurance covers business property and physical assets—whether the property belongs to you or is in your care, custody, or control. For example: A dry cleaner that has customers’ clothing or a warehouse storing other businesses’ goods.

General liability. A liability policy protects a business owner against claims for accidental bodily injury or property damage to a third-person’s property. For example: General liability insurance covers a restaurant if a customer slips and falls while dining there or if someone claims the food made him sick.

Commercial auto. This covers your company vehicles for comprehensive or collision and protects the business from liability resulting from accidents with third parties. It covers bodily injury of third parties and/or property damage to the vehicles or other property of third parties.

Workers’ compensation. Workers’ compensation is required by the state for any nonconstruction business employing four or more people and any construction business with at least one employee. It provides medical and partial wage replacement benefits to employees who are injured while engaging in work-related activities.

Workers’ compensation is affordable and provides excellent coverage, so many insurance agents advise small business owners to obtain it—even if they are exempt because they only have one or two employees. 

In addition to

While the above four types are recommended—or required—for most small businesses in Florida, there are additional types of coverage that, depending on industry, may be relevant.

Business interruption. This covers lost business income as well as extra expenses to help get your business back up and running fast. If a fire destroys your restaurant, for example, you will receive a check for lost business income from the insurance company.

Errors and omissions/malpractice. This type of liability insurance protects those who provide professional advice or services, such as attorneys, accountants, physicians, architects, engineers, etc.

Key person. Key person insurance protects a business if an employee instrumental to the success of the venture dies or becomes disabled. If that person is a product developer, for example, it could cover the cost of finding a replacement.

Health. A group health insurance policy not only protects the employees of the business, but can also be a valuable tool for attracting and retaining employees.

Liquor liability. If your business serves liquor—even if you use caterers with bartenders—then liquor liability coverage is a necessity, and may be included in your general liability policy.

Employment practices liability. This protects employers for employee-related issues, such as wrongful termination, discrimination, harassment, etc. “This is the fastest rising claim in the property casualty industry,” said Christian Baird, a property and casualty specialist with MetLife in Jacksonville. “All an employee would have to do is say you pinched her once, and you’ve got a lawsuit.”

Disability overhead. Baird said this protects an entrepreneur in the event he gets sick or injured and cannot work. “We’re all three times more likely to get sick or injured and not be able to work for two and a half years than of dying before the age of 65,” he added. “So this helps make sure the business continues in the event of a debilitating disease or accident.”

In the market?

Some expert tips to consider when you are in the market for insurance:

•Consult with experts at the SBDC or SCORE. They can help ensure you have adequate property limits without overpaying on premiums.

•Get quotes from three different insurance agents, and consider using an independent broker, who represents many companies and may be more objective.

“Some of the captive insurance companies such as State Farm, Allstate, Nationwide, and Farm Bureau have excellent insurance programs and can be tough to beat for coverage and price,” Zelen said. “But independent agents can usually write all of your insurance.”

•Incorporate risk mitigation practices into your business operations. “There are a lot of different things you can do to assess your risk and mitigate that risk as opposed to buying insurance,” said Cathy Hagan, area director of the SBDC in Jacksonville.

“If you do background checks on employees or take care of your property so it doesn’t create hazards, that could protect you and maybe lessen the requirement of insurance.”

•If you work at home, remember your homeowners policy will not protect you from liability resulting from your business operations. So if a client injures himself in  your home, you may be in trouble—unless you have a rider to your policy that protects your home-based business or another type of general liability coverage.

•If you use subcontractors or have vendors, consider obtaining a certificate of insurance from each one to ensure they have adequate coverage as well as workers’ compensation. 

•Make sure your insurance carrier has a high rating and is financially secure. Look for a rating of A or better.

Most important, work with an insurance agent who specializes in business—or who at least devotes a large chunk of his time servicing the needs of business clients.

 “A good insurance agent will explain the coverages available to clients so they are knowledgeable and make smart insurance purchases,” said Zelen.

Robyn A. Friedman is a contributing editor to Advantage. She can be reached at

What’s adequate insurance cost?

Premiums vary based on a business’s operations, assets, number of employees, payroll, property holdings, revenues, policy limits, etc. According to Vicky M. Zelen, president of Zelen Risk Solutions Inc., coverage can run as little as $300 per year—or can be unlimited for large entities with risky operations. General liability insurance is usually from 1% to 5% of annual revenues, she said, although this varies greatly depending upon the industry.

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