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Expanding your small business: How do your insurance needs change?

Your small business has become very successful over the past couple of years. In order to keep your customers happy, you need to expand. That could mean finding a new and larger location, hiring employees and more.

No matter how you plan to expand your business, growth may affect your current insurance coverage. So before you make a change, contact your agent, broker or insurance company to make sure you have the insurance you need to protect your business.

expanding business insurance needs "It may be tempting to leave your policy as is to save money, but that could cost you thousands or even tens of thousands of dollars later on if you have gaps in your insurance coverage," says Karl Newman, president of the Northwest Insurance Council, in Seattle, Wash.

Here are four business-expansion situations and how to properly insure them. Because there are so many variables that determine insurance costs, getting an individual online quote from insurers including Nationwide, Geico and State Farm will give you an idea of how much to budget for different types of business insurance.

1. Moving to a larger location.

Up until now, you've been working out of your home, but you need a larger facility to meet the needs of your customers. Whether you plan to lease or buy space, a new location requires a separate policy for both property and liability coverage, Newman says. The difference is that when the business owner also owns the building, coverage is needed for that building, too.  

"If you’re leasing, you only need insurance to protect your goods and equipment -- anything you bring into the space you're leasing," Newman says. “Your existing goods and equipment should already be covered, so you'd only need to add any new purchases to your policy.”

If you plan to have walk-in customers, that may increase your liability. Insurance companies need to know this, so fully disclose your future plans, Newman says.

2. Adding employees.

Up until now, you've handled the entire workload alone, but now you need help. Depending on the state where you're located, you'll most likely need workers' compensation insurance for your staff, says Paul Bruemmer, head of commercial multiperil products at Farmers Insurance.

According to the Small Business Administration, a government agency that provides assistance and support to small businesses across the nation, workers' compensation covers an employee who suffers an injury or illness resulting from job-related duties.

Although states may differ, workers' compensation typically covers medical and rehabilitation costs plus lost wages.

In addition, "it’s advisable to have employment-practices liability insurance, which covers items like wrongful termination and sexual discrimination," Bruemmer says. "Nonowned auto insurance is also recommended if your employers use their personal vehicles from time to time while conducting business."

If your employees drive their own cars for business purposes- to visit clients, for example-your business could wind up liable for property damage and bodily injuries resulting from an accident for which an employee was at fault.

Bruemmer also suggests including fidelity coverage, which provides coverage against losses committed by both employees and non-employees. Those type of losses could be embezzlement, forgery, customers using counterfeit currency, or losses involving securities or money orders.

3. Selling your products online.

If your confidential business and customer data is hacked and is leaked online for anyone to trade or impersonate, cyber-liability insurance comes to your rescue. This insurance covers some or all of the following:

  • Notifies your customers of the breach.
  • Handles expenses related to the management of an incident.
  • Helps manage the risk for your customers.
  • Provides legal assistance.
  • Covers damages as a result of you, your customers, or third-party suppliers being denied access to your site.

"Whether or not you conduct commercial operations online, every small business needs cyber-liability insurance," Bruemmer says. "That need increases when you conduct business over the Internet."

4. Buying company vehicles.

You’re considering buying one or two minivans to help with deliveries. For those, you'll need a commercial auto policy, Newman says.

"Fleet coverage can actually be lower than your personal auto coverage, depending on what the vehicle is used for and who is driving it and where," Newman says. "For example, a vehicle driven by a sales representative has less risk than a semitruck delivering your retail goods."

Although this may seem like a lot to consider, remember you're not going to make all these changes at once.

“When a business expands, it not only increases opportunities for success, it also increases a business’s complexity and amplifies its exposure to greater risk,” Bruemmer says. It’s critical that you discuss your expansion plans with your agent who can help you identify any available discounts to keep costs in check.


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