Small Business Insurance Basics


Insuring your pool hall business is crucial, and after rent and utilities, is one of your larger expenses. Its also the least understood by the new owner. 

At minimum you'll need property insurance, liquor liability insurance, and workers compensation insurance.

The information below is a good primer, but I can't stress this enough, work with your insurance agent to understand all your required policies and options.

My personal experience: I was open 3 years then Super Storm Sandy hit the US East Coast.

I had flooding that required replacing $9,000 of carpet, and $4,000 in equipment and construction. Not to mention lost revenue from being closed for a month because of no power. None of it covered by my existing policies. Next, I had two people fall down stairs within a 3 month period driving my business liability rates up from $7,000 a year to over $20,000. (Make sure you have video cameras). Point is, things will happen. Make sure you take insurance seriously.

What Insurance Should My Business Have?

Most businesses need to purchase at least the following four types of insurance:

  • Property Insurance
  • Liability Insurance
  • Business Vehicle Insurance  
  • Workers Compensation Insurance
  • Liquor Liability Insurance

Property Insurance – Property insurance compensates you if the property you use in your business is lost or damaged as the result of various types of common “perils” such as fire or theft. Property insurance covers not just a building or structure but also what insurers call “personal property,” meaning office furnishings, inventory, raw materials, machinery, computers and other items vital to your business operations. Property insurance can do more than protect your physical assets. It may also provide operating funds during a period when you are trying to get the business back on track after a catastrophic loss. Depending on the type of policy you have, property insurance may include coverage for equipment breakdown, removal of debris after a fire or other destructive event, some types of water damage and other losses.

Liability Insurance – Any enterprise can be sued. People may claim that your business caused them harm as the result of, for example, a defective product, an error in a service or disregard for another person’s property. Or someone may allege that you created a hazardous environment. Your liability insurance pays damages for which you are found liable, up to the policy limits, as well as attorneys' fees and other legal defense expenses. It also pays the medical bills of any people injured by your business.

Business Vehicle Insurance – If you use your own car for business purposes, discuss this with your agent. Many personal auto insurance policies exclude coverage if the vehicle involved in an accident is used mainly for business. A business auto policy provides coverage for autos owned by a business. The insurance pays any costs to third parties resulting from bodily injury or property damage for which your business is legally liable, up to the policy limits. Depending on what kind of coverage you buy, the insurance may pay to repair or replace your vehicle because of damage resulting from accidents, theft, flooding and other events.

Workers Compensation Insurance – In all states but Texas an employer must have workers compensation insurance when there are more than a certain number of employees, varying from three to five, depending on the state. Workers comp insurance, as this coverage is generally called, pays for medical care and replaces a portion of lost wages for an employee who is injured in the course of employment, regardless of who was at fault for the injury. When a worker dies as a result of injuries sustained while working, the insurance provides compensation to the employee’s family. 

Liquor Liability Insurance - Any establishment that sells, serves, or assists in the purchase or use of liquor (i.e. dram shop) opens its doors for a liability claim as a consequence of someone getting drunk to the extent that injuries or property damages are the result. This includes restaurants, bars, nightclubs, and taverns. While it’s logical that the inebriated person should be the one to pay, in reality the business that served the alcohol could be liable for injuries, damages, or both that occurred as a result of actions, behaviors, or conduct of a patron who drank too much.

Take into Account the Following Scenarios

Liability claims made to a restaurant or bar as a result of damages or injuries caused by an intoxicated person can be quite costly. A common example of an alcohol-related claim occurs when an intoxicated patron leaves a bar, gets into his car, drives, and commits a vehicular manslaughter act. In this case, the victim’s family could now sue the bar for both civil and criminal damages. As another example, suppose at a catered event, a restaurant serves alcohol and two guests are subsequently involved in a fight, whereby serious injuries are incurred. These are just two of the many scenarios that can occur when a business that sells or serves alcohol may be held liable for the actions of the inebriated persons served.

Accordingly, it’s vital that if your establishment serves alcohol, you protect yourself from potential financial losses by being covered with a liquor liability policy. In the above examples, liquor liability insurance could help cover the bar’s legal costs, court fees, and any civil or criminal damages awarded.

Liquor Liability Insurance Policies

The terms surrounding of a liquor liability policy vary, but some commonalities ensue:

  • Most states in the US require establishments that sell alcohol to carry liquor liability insurance.
  • Most liquor liability insurance policies exclude the selling of alcohol illegally, such as selling liquor to a minor.
  • Most liquor liability policies are sold as a stand alone policy or packaged with a general liability policy.

What Liquor Liability Insurance Covers

As might be expected, a good deal of alcohol-related liability claims filed against bars, taverns, and restaurants are a result of liquor-induced fights or altercations. In fact, the mere act of an employee escorting an unruly patron to the exit is frequently all that is necessary to trigger an assault and battery allegation. Therefore, assault and battery coverage should be included in your liquor liability policy. Lastly, litigation costs, including the fees to retain an attorney and court costs are covered under a liquor liability policy.

Take Appropriate Preventative Measures

Aside from investing in liquor liability insurance, establishments should be proactive in limiting their liquor-induced claims. From training employees to refuse serving alcohol to clearly intoxicated persons to requiring strict measuring of mixed drinks to encouraging designating drivers or taxi use, you can reduce your chances of having to deal with a liquor liability claim by implementing and enforcing safe alcohol serving practices.

Other Types Of Policies You May Need

In addition to the basic coverages highlighted above, there are various other policies needed by some businesses.  They include:

  • umbrella policies
  • specialized liability policies
  • terrorism insurance  

How Much Insurance Do I Need?

When purchasing business insurance it's important to obtain the right amount. Be sure that your company is neither overinsured nor underinsured. To help you decide the amount of property insurance you need, list all your company’s assets—including property, equipment and inventory. You can buy property insurance on the basis of the property's actual value (the replacement cost minus depreciation) or its replacement value (the cost of replacing the item without deducting for depreciation).

An agent and insurance company familiar with the risks typically involved with your type of operation can help you decide on a reasonable amount of property and liability insurance. 

How Can I Keep Premiums Down?

1. Shop around. Prices vary from company to company, so it pays to get several quotes. Get the names of insurance companies or brokers who specialize in your type of business. Call several so that you can compare prices and get a feel for the types of services they would provide.

It's also important to pick a company that is financially stable. Check the financial health of insurers with rating companies such as A.M. Best and Standard & Poor’s and consult consumer magazines. Your trade association or other group that represents your business may be able to provide recommendations.

2. Choose a higher deductible. Deductibles represent the amount of money you pay before your insurance policy kicks in. The higher the deductible, the less you will pay for the policy. At the same time, be sure you don’t set the deductible so high that it will be a financial burden for you to pay the deductible if you have a loss.

3. Buy a package policy. A package policy, such as a Businessowners Policy (BOP), rather than individual coverages will cost less.

4. Work closely with your agent. The more the agent understands about your overall business and finances, the better he or she will be able to find competitively priced products for you.

5. Ask about specific actions you can take to prevent losses. You may be able to reduce your premium for certain coverages by following your insurer's specific recommendations. These can include tips on workplace safety, disaster preparation and devices that reduce losses (loss mitigation), such as installing alarms and sprinklers. In addition, there are steps you can take to lower the possibility that one of your employees might file a lawsuit against you for discrimination or sexual harassment, for example.

6. Avoid losses. Remember insurance works a lot like credit. Costs are lower for customers with better claim histories. The more losses you have, the higher your premiums will be, because it suggests that you are not very careful and there will be more losses in the future. If your loss history is bad enough, you may have trouble obtaining insurance at all from a private insurance company. 

Finding The Right Agent

How do you choose an agent? The best way to find someone you’re comfortable with is to talk to several over the phone or visit their offices. 

Competent insurance agents should be able to answer your questions, help you assess what coverages you need and offer you insurance products to meet those needs. Ask them also how they deal with claims. Then, decide whether the agencies you contacted are likely to provide you with prompt, quality service on an ongoing basis. 

Good agents can consult with you not only about the insurance you may need but also about ways to reduce the likelihood of theft, injuries to visitors and workers, and other business-related losses. 

Look for an agent who knows about your type of business. You may not find one with pool hall experience, but many know bars and restaurants and the types of insurance needed for them. Ask friends and acquaintances in the same kind of business about the agent they use. You can contact your business trade associations to see if they sponsor an insurance program designed specifically for your business or if they can provide a list of insurers who specialize in your field. The agent who handles your personal business—your auto and homeowners insurance—may be able to recommend an agent or broker to handle your business needs.

There are two kinds of insurance agents: those who represent only one insurance company and those who represent more than one. A “captive agent” represents only one company. An “independent agent” represents several companies.

An agent is a person who solicits, negotiates and implements contracts of insurance on behalf of an insurer, subject to the terms of the agency contract with the insurer and to the laws of your state. You may also obtain insurance with the help of a broker, although brokers generally work with larger entities. Traditionally, a broker has represented the policyholder. Now, the distinction between an agent and broker is blurring. The broker may act as an agent of the insurer for certain purposes such as delivery of the policy or collection of the premium. In the insurance industry, both agents and brokers may be known as “producers.” 

As important as anything else in finding the right agent is the level of professional confidence and personal comfort you feel with that person. One source of help is the Internet, which has opened up new avenues for purchasing small business insurance. Some insurance companies give customers the option of getting quotes online. In addition, there are insurance hubs that offer quotes from several insurers. These online services generally put the client in touch with an agent. 

Working With Your Agent

Your insurance professional can provide invaluable advice. Ask your agent what you can do to reduce risks like fire or work-related accidents and about the procedures that should be in place to minimize losses in case your business is hit with a major disaster. To ensure that you have the right coverages and the appropriate amount of insurance, you need to keep your insurance professional informed about any major changes in your business on an ongoing basis. This includes major purchases as well as changes to your building, the nature of your operation and in the number of employees. 

Who Regulates Insurance?

Insurance is regulated by the individual states. Many states have publications and information on their Web sites to assist small businesses with understanding and finding insurance, as well as a great deal of other consumer insurance information. Most states have telephone helplines so that you can call and ask questions about insurance. 

What's been your experience working with agents and understanding the insurance landscape as you plan your business?