Episode 013: Business Insurance 101

other legal solo show Nov 14, 2019

On this episode, I discuss the importance of small business insurance and how to get started protecting yourself and your business.

Here’s the super short summary.

Most policies will include general liability which covers physical injuries.

If you want to cover mistakes & issues, you’ll want to look into errors & omissions coverage.

Make sure to find an agent with whom you have a good rapport who is also familiar with your industry.

I also noted that insurance is one of the layers of legal protection for your biz. For a deeper dive into the layers of protection, checkout episode 006.

Episode Transcript

Braden: (00:01)
Hello and welcome to episode 13 of the unpack your best podcast. My name is Braden, your host and welcome to the show. Super excited. Today I'm going to break down just some one Oh one super introductory information on business insurance caveat before we get started. I am not an expert when it comes to business insurance. I am not an insurance agent. This is simply information that I have gathered from talking with insurance agents and clients along with a little bit of other research that you can use in your search for insurance. Before we get into the details, I want to explain a little bit about how insurance interplays with some other areas of protection and your business. Back in episode six I talked about the seven layers of legal protection and your business. You can go check out that episode, review the show notes at unfuck, your biz.com to get the seven layers of protection download that I have and that will be a good kind of starting point for this, but I'll give the brief overview here as well.

Braden: (01:09)
This is kind of, what's the word I'm looking for here? A guide that I have or just an example I guess, of how insurance works along with your contract and LLC. I find a lot of people are super confused about this. I get questions all the time about people will say, well, do I need an LLC if I have insurance or do I need insurance? If I have a contract? The answer is always yes because they serve different roles and your business. So the way I kind of like to break it down is that your contract sets the rules, like it's your policy, it sets the rules between the parties, your insurance foots, the bill. If you break the rules and your LLC is your last line of defense to shield your stuff from the aftershock after the insurance has done or where the insurance takes no effect.

Braden: (02:06)
So let's give an example here. Say for example that your client does not pay you and it's 15 days before the date you're supposed to photograph their wedding. So your contract says that you are allowed to cancel and that you do not need to show up at the wedding day. So if they decide to Sue you a to put on a whole new wedding because you missed the wedding day, then ideally our insurance is going to step in and cover your attorney's fees in that lawsuit. But ideally you won't even need to get that far. It'll go to small claims court and your contract is going to cover you by showing that you were the one abiding by the rules that you set up. Now assume that you are at fault and you did not properly abide by the rules or let's say that you injure someone because in that case you can't really disclaim injury very well.

Braden: (02:57)
You can, but we won't get into the nuance and that case your insurance is going to flip the medical bill for the person suing you and then also pay for your attorneys to fight that through the legal system. The last line of defense is the LLC. So if your insurance only covers you up to a hundred thousand dollars in claims and this individual sues you for $200,000 then the LLC steps in and shields your personal assets from having a lien put against them for satisfaction of that judgment. And I know I probably just used a lot of legal terms there, but basically all it means is someone should [inaudible] sues you for 200,000 your insurance policy pays the first hundred now this person wants to get a fancy piece of paper in order to force you to have to sell your house or liquidate your retirement in order to make up for that extra 100,000 that's where your LLC protects you because it puts a line of defense between yourself and your business.

Braden: (04:01)
It's not guaranteed. There are exceptions. Again, we won't get into the super nitty gritty, but that's essentially the purpose. The LLC is also very important when you are not covered by your insurance. So you might have a general liability policy. The only protects you from claims of physical damage. So if you physically harm someone and they might Sue you for arrows and emissions, and if you don't have a policy that covers that, then having a formal business entity like an LLC or a corporation will be very necessary to help protect you. So that's kind of the interplay of the contract insurance and LLC. I hope that helps a little bit. If you need more help specifically with the contract piece of this, I do have a free download called the DIY contract audit checklist. Go check that out. Unpack your biz.com you can click on the freebies button, download that, and it will help walk you through your contract and make sure you have all the nuts and bolts that are necessary to protect you.

Braden: (05:08)
I also wanted to provide an example of where insurance is not necessarily going to help. So if you misclassify a worker that should be an employee, maybe they're working for you, uh, several hours a week doing work in your business. And under California law are a different state's law. They technically should be an employee, but you're treating them as a contractor. That worker then decides to Sue you for overtime pay and several other things. To my knowledge, there's not an insurance policy you can get to protect yourself from that. You can always ask your insurance agent if you can get that, that would be great. But if you're not covered for that type of claim, that's where your contract and your LLC, you're going to be very helpful. Likely you can't do a whole lot in a contract to protect yourself in that scenario. Either. You can try through a solid independent contractor agreement, but the business entity is going to be very important.

Braden: (06:03)
They're moving on to some more details with insurance I mentioned before, general liability and errors and emissions. Those are two different things. So a general liability policy, that's what most people get by default, that is there to help protect you from any physical damages. So damages that come out of physical harm. So if you accidentally, you know, elbow the bride and the nose while you're trying to take photos and then she has a medical issue that is a physical damage. So your insurance, if you have general liability, would protect you from any results of that arrows in emissions. That's a different type of policy that will protect you. You know, if you forget to book a venue as the wedding planner or you give that advice as a life coach or a business coach, these types of things, it's, it means you either neglected to do something you're supposed to do or you've done something wrong that's caused monetary harm to the other party.

Braden: (07:09)
It's recommended that you get covered for both of these things, so you want to make sure that your policy does cover it. Additionally, coverage for damaged property can be separate as well. I think that that sometimes is included in a general liability policy, but not always. So you want to check. Ultimately, I would love on this podcast just to break down, here are the five types of insurance policies and exactly what they cover and when she should have each one, but these really are a, I would call them like quote unquote insurance products. Each insurance company is going to operate a little bit differently with regard to what they cover. It'll be nuanced, so you need to make sure that you know where the areas of risk are in your business and what you would like to seek coverage for. I know that's not a super easy thing to do, but the main takeaway that I would like to give for this whole episode is finding an insurance agent that you like, that you have a good rapport with and tell them what you do in your business.

Braden: (08:15)
Make sure they understand your business model and where their risks lie, and then give them a good idea of what kind of protection you want and what your budget is. So say, you know, I would like to be protected if there's any physical harm by my, uh, by myself to my clients if I neglect to do these things. So I'm a photographer and I want to make sure that I'm covered if I accidentally lose all the files to their photos and they want to Sue me, that sort of thing. I also want to be covered if all my camera equipment gets stolen like on the wedding day and then they should be able to tell you if that's covered and how much it's gonna cost. Now I spoke with an agent and ask them for most small business creatives, if you want to get fully covered for all the stuff we just talked about, how much is it going to cost and the total we came up with was around probably a thousand to $2,000 a year, which comes out to like 80 to 200 bucks a month.

Braden: (09:14)
So if you're paying 40 to $50 a month right now, which is pretty common for a lot of photographers I know based on bookkeeping that I've done for clients, then you'd likely just have a general liability insurance policy and you may not be covered for the other stuff. That's not to say that you're definitely not just based on kind of what the industry averages are. So my guess, my tip would be if you're putting, paying under $80 a month, see if you're covered for those other things and then ask yourself if you want to be covered for them, if it's worth the money and the peace of mind and all of that stuff, and then you can make your own business decision. So in order to get fully protected in your business, my top takeaways would be obviously make sure your contract is up, up to speed, consider a business entity and then really get your insurance up to date.

Braden: (10:08)
Other top tips, make sure that you're in regular contact with your insurance agent if you have any major changes in your businesses. So that means you start to offer a different type of service. You start taking on much more high dollar projects, you move locations, all this sort of stuff. I know a lot of people are hesitant to contact their insurance company when they have changes because they're afraid that their rate will go up, but if you don't let them know when you have changes in your business, then they are unlikely to cover those changes. If some sort of catastrophe or to result. So make sure you let them know your insurance company should contact you about once a year to update your policy. But if they don't, you should contact that. So that's all I really have for you guys on insurance. I hope this was relatively helpful.

Braden: (11:00)
It's really just one of the many items that you need to check off your list as a small business owner when it comes to making sure the back of the house is all cleaned up and you're protected. If you have any questions, shoot me a direct message on Instagram. Also, don't forget to join the Facebook group Brayden's besties and subscribe and leave a review. I just gave you like eight tasks to do, but you can put them all in your planner for this week and I will see you on the podcast next week. Have a good one.

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