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?
What Determines Your Insurance Premium?

In order to illustrate the factors that affect insurance premium rates, let's start with an example that you're probably familiar with: Auto Insurance.

When you purchased Auto Insurance, your agent or provider likely had you complete an application with some basic questions. For example, you may have provided information about the make, model, and year of your car, your driving record, sex, age, and marital status.

Why all this information? Because your insurance provider uses these details to decide how much risk it is taking on by offering you coverage. For example, a sports car costs more to insure than a station wagon because the valuable, eye-catching car is more likely to get stolen. To offset the higher risk, your coverage rate increases.

Business insurance operates in a similar way. To determine your premium and coverage options, your insurance provider assesses…

  • Your industry (i.e. IT consultants, market research analyst, etc.).
  • Where your business operates.
  • The number of employees you have.
  • Common risks related to your profession.
  • The types of policies you purchase.
  • The policy limits you choose.

Though some of these factors can't be controlled, others can. For example, you can take steps to reduce your risk exposures. In turn, you may be able reduce the cost of your coverage. For more information about risk management strategies, jump to page XX of this guide.

Next: Do Independent Consultants Really Need Small Business Insurance?

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