Expert Advice
A Risk Management Guide for Marketing and Management Consultants

Chapter 2: Understanding Small Business Insurance for Independent Consultants
Part 1: What Is Small Business Insurance?

Small business insurance functions similarly to your personal policies, such as Auto Insurance. When you purchase a business insurance policy, you enter a contractual agreement with the insurance carrier.

In order to understand how this contract works, you'll need a basic understanding of the following concepts:

  • Premium. Your insurance premium, or "rate," is the sum of money you pay in order to keep your insurance benefits. You pay your premium in regular installments. Depending on your policy, you might pay every month or once a year. The cost of your premium is based on your likelihood for a filing a claim.
  • Deductible. After you file a claim, you must pay a deductible before you can receive insurance benefits. When choosing an insurance policy, you usually have a few options for your deductible. Generally speaking, a higher deductible means a lower premium.
  • Policy Limit. Every insurance policy has a limit, the maximum amount of money your insurance provider pays toward a claim. Sometimes small business insurance policies come with two limits: an individual limit (how much your insurer pays toward any one claim) and an aggregate limit (how much your insurer pays toward all claims during your coverage period).

In exchange for a premium, business insurance helps you pay for the kind of unexpected costs that most small-business owners wouldn't be able to afford on their own. This includes lawsuits, property damage, and other incidents that interrupt your business.

Each insurance policy explicitly outlines the conditions and circumstances for which you'll receive financial compensation. It also specifies the limitations of your coverage, called "exclusions," which are events or situations your policy won't cover.

Next: What Determines Your Insurance Premium?

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