What is IT Business Insurance?
As a small business, you probably don't have the financial resources to cover huge, sudden expenses from things like office fires, lawsuits, professional mistakes, and other liabilities. That's where business insurance comes in. Business insurance
works on a simple principle: for a guaranteed, small cost in the present, you can avoid a bigger, unpredictable cost in the future. It works based on four key components:
- Premium. This is the present cost you pay the insurance company. Premiums can be paid yearly, monthly, or at other intervals.
- Claim. After a fire, theft, lawsuit, or other covered event, businesses file a "claim" with their insurance provider in order to receive money for the cost of these expenses.
- Deductible. Deductibles for business insurance work the same way they do for your medical or dental insurance. A deductible is the amount that you must pay before your insurance company will start to pay benefits. In other words,
a Property Insurance policy may have a $500 deductible, which means you'll pay out of pocket for property damage expenses that cost less than $500. Once your claims exceed $500, your insurance policy will pay.
- Policy limit. All policies have limits, usually a per-claim limit and a total limit. In other words, the maximum amount your insurance will pay for a single claim and for all claims during a policy's lifetime. A General Liability
Insurance policy may have a $1,000,000 per-incident liability limit and a $2,000,000 aggregate limit, which means it will cover your expenses until the total cost of legal fees and other expenses reaches $1,000,000 for a single claim or $2,000,000
for all claims in a single policy period (typically one year).
There are many different types of business insurance, but at their core, they're all about one thing: cost certainty.
Between legal fees and other expenses, a lawsuit can run up a six- or seven-figure bill. Few sole proprietors have a bank account capable of absorbing that kind of loss - you simply can't budget for lawsuits.
But you can budget for insurance. Compared to a lawsuit, premiums are a much smaller expense, one you can fit into your budget. Each year, you know how much your insurance will cost, which allows you to plan. Plus, you know that when a lawsuit does happen,
your insurance will cover it. And that could make the difference between continuing to grow your business and filing for bankruptcy.
Keep reading for a breakdown of your coverage options.
Next: Which Insurance policies should a small IT business consider?