As a business owner, you have much to protect – your property, your inventory, your people, the equity you’ve built up over the years and, ultimately, your very livelihood and future. As you engage in financial planning, you must factor into your budget your insurance requirements to protect your valued assets.
Any successful business owner must ensure the business is protected against unforeseen events that could potentially result in a shut down. And for those of you who do not believe you need any insurance, employing a cost-cutting strategy to forego insurance could be disastrous.
As your outsourced finance and accounting department, TGG helps guide you through the budgeting process of allocating the appropriate amount of money to secure insurance and ensure you are able to mitigate potential risk.
Assess Your Exposure to Risk
Before you purchase insurance, it is wise to perform a risk-management audit. This will help you identify any potential liabilities and what a disaster or work-related accident might cost. This audit should be conducted each year as your business grows and your need to protect your business increases.
It is prudent to retain the services of a reputable insurance broker to help you navigate this process. There are numerous options in terms of types of coverage and the amount needed and/or required. This will be dictated by state requirements, and the actual location of your business in relation to potential disasters, i.e., fire, flood, earthquake. The type of insurance and amount you carry will also be dictated by the type, size and profitability of your business.
Do I Need a Broker?
Insurance is complex. It can be a challenging and daunting process to select the optimal plan without the assistance of an experienced broker who understands all of the offerings and the carriers who provide particular types of insurance. A qualified broker can assist you with a risk analysis and benchmark your business against those similarly situated to ensure the type and amount of insurance you carry is appropriate.
Brokers are required to represent your best interests. A reputable broker will take the time to understand the nuances of your business, your particular needs, your risk profile, and identify the best insurance according to your budget. The rule of thumb is that brokers not show particular preference for one carrier over another, but rather select the best policy to meet their client’s needs. This is why they are paid a commission rather than a direct fee from an insurance company.
How Brokers Get Paid
As mentioned above, insurance brokers make money from the commissions they receive for selling a particular insurance company’s products. Most commissions run between 2 percent and 8 percent of the premium charged for a line of insurance. The amount of commission is governed by state regulation.
How Insurance Companies Make Money
Insurance companies generate income in two ways: (1) from premiums they collect on the policies sold and (2) from earnings generated from investing those premiums. Insurance companies take on the risk of their insureds by covering expenses incurred when there is a covered event, i.e. an accident, property loss, etc.
In return, the insurance company collects a monthly premium from the customer. These premium dollars are invested, which generates a pool of money that is used to pay out claims, providing the customer peace of mind. Essentially, it is the role of the insurance company to manage risk on behalf of its customers.
TGG takes a holistic view of your business ensuring we guide your success on finance and accounting matters that help you achieve success and grow.
Let’s guide your success . . . together. For a free assessment, contact us.
Go to TGG University to learn more about “Insurance Strategies.” Watch Video>
• Insurance 101 Watch Video>
• Don’t Overinsure Watch Video>
• Healthcare Coverage Watch Video>
• Life Insurance Watch Video>
• E&O vs. D&O vs. Umbrella Watch Video>
• Worker’s Compensation Watch Video>