Risky Business
A Small Business Insurance Guide for Independent Insurance Agents and Brokers


Chapter 1: How Small Business Insurance Works

What Is Small Business Insurance for Stock Brokers and Insurance Agents?

As you may already know, small business insurance protects your stock brokerage or insurance agency's commercial assets from potential losses. Assets you can protect with insurance might include anything that helps your business grow and prosper, including…

  • Commercial real estate.
  • Business equipment (e.g., computers, printers, scanners, and fax machines).
  • Business vehicles.
  • Income.

If your business loses one of those assets, you'd have to absorb the cost of that loss — unless you have adequate business insurance. With the right policies in place, your insurance provider will bear the financial blow instead. Depending on the situation, that may entail…

  • Paying your lawyers' fees and settlements or judgments when your business is sued.
  • Compensating you for the cost of replacing insured property.
  • Compensating you for the cost of repairing insured property.

Small business insurance can protect your commercial real estate, business equipment, company vehicles, and revenue against loss, damage, or collection.

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The Building Blocks of a Small Business Insurance Policy

Though we try our best to spare you all the insurance jargon, there are three basic tenets of a business insurance policy that you need to know:

  • Premiums. Essentially, your insurance premium is the bill your provider charges you for its services. In order to receive your benefits, you must pay your premium on time. Usually your premium is due at monthly, biannual, or annual intervals, depending on the terms of your policy.
  • Deductibles. Once you make a claim on your policy, you must pay a certain sum of money toward it before you can receive your insurance benefits. That sum of money is your deductible. Deductibles vary from policy to policy, and you may be able to cut your premium costs by taking on a higher deductible. However, you never want to choose a deductible you couldn't comfortably spare if you ever need to make a claim. That would defeat the point of having insurance in the first place!
  • Policy limits. This is the maximum amount of money your insurance provider can pay toward a claim. Your limits are stated in your policy's terms. Sometimes laws and regulations require certain professionals to carry policies with specific policy limits.

At the end of the day, insurance is a way to mitigate your business's risk. We'll discuss the risks and liabilities agents and brokers face in the next section.

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Higher premiums come with lower deductibles and vice versa. Be sure you never choose a deductible that you couldn't comfortably afford if you ever need to file a claim.

Identifying the Risks of Your Independent Agency or Brokerage

Most agents and brokers already have experience recognizing risk. Stockbrokers decide whether or not to take financial risks every day. Insurance agents help their clients find products to mitigate their own risks.

But in helping others mitigate their risks, you expose your business's own vulnerabilities. You probably already take measures to reduce your liabilities and risk exposures, but the plain truth is: you can't control everything. There's always room for potential disasters and unexpected lawsuits.

That's why it's essential to develop a thorough risk management plan. These plans work by…

  • Identifying and evaluating potential areas of threat.
  • Determining which risks require action.
  • Taking steps to reduce those risks and prevent loss.

The risks associated with brokers and insurance agents vary, so you'll need to evaluate your business on its own terms. To help you get started, here are a few broad categories that every agent should consider when assessing their exposures:

  • What do you own? The more business property you own, the more you have to lose. Agents and brokers who own commercial buildings will have different risk considerations than those who rent or run a home-based office. You'll also want to consider protecting the business equipment you use every day. Your computer, phone, tablets, and other types of office equipment are vital to the day-to-day life of your business.
  • What do you do? Your industry (financial or insurance) exposes you to different liabilities and holds you to different laws, regulations, and professional codes of ethics. Agents and brokers tend to be held to high professional standards, and if you fail to meet those standards, you could be sued for negligence.
  • Who do you work with? Stockbrokers and insurance agents sometimes specialize in certain types of clients. Working with high-dollar clients raises the stakes for all parties involved. Your clients have more to lose if something goes wrong — and your business could be sued for those losses.

Some situations are outside of your control. You can't force a client to not sue you. You can't control the weather to spare your property from loss or damage. That's why you need a safety net when things don't go as planned. For many agents and brokers, that net takes the form of small business insurance.

Your industry has professional standards that must be met — and failure to meet those standards could mean a lawsuit for your small brokerage.

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Next: Chapter 2: How Insurance Protects Your Independent Insurance Agency or Stock Brokerage

Grab-n-Go Information

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Risky Business: A Small Business Insurance Guide for Independent Stock Brokers and Insurance Agents
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