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Before you make the decision to start your own business, it’s important to look at all of the up-front costs as well as monthly expenses you will have. Some costs are static and unchangeable, others can be manipulated. Insurance coverages fall into the latter category. With a little understanding of how companies determine premiums, you can reduce your insurance costs significantly.
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 make consulting with your insurance professional part of your business plan. They are a valuable resource for finding the coverage you need at a price you can afford.