Accountant & Bookkeeper Guides
Small business insurance advice to help your clients
6 min read
Choosing the right insurance can help keep your clients in business. Different policies cover physical losses and liabilities. There are also policies to help businesses survive temporary closure or loss of productivity. Make sure you know the basics.
You’ll be asked for insurance advice
As a business advisor, your clients are likely to ask about business insurance. You can refer them to experts, or to a broker you trust. But don’t rush them. Your client may not be ready to speak to a sales person. It could be that they just want to understand the basics first. So try to give them some knowledge to work with.
Many forms of insurance are well understood by small business owners. Others are not. By taking your clients through the concepts, you’ll help them figure out the coverage they need.
1. Property damage insurance
Most people understand property damage insurance because it’s similar to a homeowner’s policy. It can cover a building, its furnishings and objects against things like theft, fire, and some natural disasters. In other words, it covers the tools and materials that your client needs to do business.
If your clients are in areas with a history of hurricanes, flooding or earthquakes, they may have to pay more for coverage against those events.
The insurer will decide on premiums and deductibles during the underwriting process. They do this by considering the:
risk of damage or loss
cost of repair or replacement
Your client’s insurance costs will increase if they have expensive equipment or large inventories. A car dealership, for example, could have hundreds of cars on their lot when a disaster strikes, leading to high premiums. By comparison, a plumber would have less inventory and therefore lower premiums.
Be aware that auto insurance for company cars (or other vehicles) is separate and also compulsory. State law will explain your client’s obligations. It’s worth checking they’re compliant.
2. Liability insurance
If something happens at your client’s business that harms other people or their property, your client can be liable. Liability insurance can help cover the cost of compensation that they might owe.
Liability insurance can also provide cover against punitive damages. Punitive damages go over and above compensation. A court may order your client to pay them if they were grossly negligent.
When giving small business insurance advice, be mindful that liability insurance is compulsory in most states. Some lenders may also require it.
You should also point out that liability insurance doesn’t cover injury to employees. Those obligations are stated in state workers’ compensation laws.
The cost of liability insurance depends on the risks in your client’s business. A mechanic’s garage is more dangerous than a gift-card store and will have higher premiums.
3. Professional liability insurance
Some businesses can be held liable for professional misconduct. If they make a mistake, they’re expected to pay for damages caused by the error. Professional liability insurance can help cover those costs.
When giving insurance advice in this area, remember that some types of businesses must have professional liability coverage. Doctors, lawyers, architects and accountants are most likely to need it, but encourage your client to check local state laws. They may also need liability insurance to compete for contracts with large companies or government organizations.
4. Business continuity insurance
Your client may be insured against physical losses and liability, but what about loss of business? How will they survive if something comes up that forces temporary closure, or reduces the amount of work they can do?
Small business insurance advice isn’t complete without mentioning business continuity insurance. It can cover lost revenue and help businesses get back on their feet quickly.
Events come along that force businesses to shut down for days or even weeks. Or a business may have to work more slowly while facilities are rebuilt. The lost income can be devastating. Business continuity insurance can cover the lost revenue to help keep businesses afloat while they recover from a disaster.
When businesses are shut down or slowed down, business continuity insurance can help them return quickly to normal operation. This is really important for seasonal businesses that are entering their highest-earning time of year. A tax-focused accounting firm that’s fire damaged in late February could lose an entire tax season. The right insurance will give them the means to set up a new office in the shortest possible time.
Financing temporary solutions
Perhaps a small business could keep their doors open if they could just afford a temporary location, replace inventory quickly, or rent manufacturing facilities. Business continuity insurance can help cover the costs of such temporary measures. It can even pay for temporary staff.
Business continuity or interruption insurance is not required by federal, state or local governments. But it can be added to many traditional policies for extra protection.
You’re not selling them insurance. But you can offer an independent view about where their real risks are.
Help your clients to double-check their current insurance needs
You’re not an insurance agent so you don’t need to know everything. When giving small business insurance advice, your main job is to help clients get a sense of how it works. They need to know what’s out there and what they might need.
How do you help clients assess their requirements? Here’s what you’ll need to look at:
1. Work out the current business risk
Have an honest conversation about all the known risks for your client. Step through their day-to-day operations and make a list of everything they use. For each piece of equipment, ask what they’d do if it stopped working. Do the same for third-party services that they rely on. Help them identify issues they haven’t thought of. It will put them in a good position to seek quotes from insurers.
2. Make insurers compete
Once your client has assessed their risks, help them research different providers. Take a look at the insurers your other clients use. Create a shortlist and suggest your client get multiple quotes. Each agent will provide their own piece of insurance advice, telling your clients what they need and don’t need. It can get hard to compare policies and quotes. Your client will need to double-check each quote to make sure the most important items and events are covered.
3. Consider bundling
Just like home and auto insurance, business insurance can often be bundled at a discount. Your client may get the best value by taking property, liability, auto and business continuity insurance with one provider.
4. Regularly review coverage
Your client’s risks and responsibilities probably change all the time. Check that they’re talking to their insurance agent regularly, to make sure they have the right coverage. From time to time, they should also review their insurance to confirm that they’re on the most cost-effective policy bundle. Packages change all the time. It’s just a quick call to the agent and it could save thousands.
Insurance isn’t the only defense against misfortune. Your client can make other plans to try and steer their business through difficult events. If they operate in an area that’s prone to natural disasters, they should develop a disaster readiness plan. Some good tips and templates are available from the Small Business Administration website.
It helps to have plans in place for other types of emergency too. What if an important supplier can’t meet their order? What if their biggest client goes out of business? What if a health and safety breach occurs at their workplace? Being prepared and being insured are two different things.
Giving basic small business insurance advice
Insurance advice for your small business clients doesn’t need to be hard. It’s not your job to be the expert. But you can help them understand the basics. Help guide them so they focus on the right areas of their business. You’re not selling them insurance. But you can offer an independent view about where their real risks are. It could one of the most important conversations you have.