FINANCING & BUDGETING • November 3, 2014
4 minutes Read
Business Insurance, a Common Area of Business Planning
Every business owner has a checklist of things they need to succeed. One common area of business planning that many businesses approach with trepidation – or even a sense of dread – is business insurance.
There are many misconceptions and (usually) irrational anxieties surrounding proper business insurance. Some people mistakenly believe that businesses don’t need insurance until they have employees.
When you are not giving your business insurance coverage proper attention, you could accidentally increase the risks to which your business is exposed. Giving your small business the best chance to thrive will mean lowering risk – and proper insurance coverage is a smart way to manage your business’ exposure to risk and potential loss.
Taking the fear out of business insurance is easy – it simply requires a little research and a better understanding of the types of business insurance available. Once you know more about the options, you can better meet the unique needs of your own business.
Here is a short list of common business insurance, and what each type will cover.
Worker’s Compensation: This insurance will cover the employees in the event of an on-the-job injury. The restrictions, requirements and details vary from state to state. For more information, visit: http://www.workerscompensation.com/
Property and Liability: Property and Casualty: Though these are distinct forms of coverage, many insurers will roll two into one policy. Many advisors would suggest taking advantage of them together, as they offer good coverage for most small businesses.
Property insurance covers against loss or damage to a business location, and includes the contents of the business. Property insurance might be specific (i.e., fire, flood, etc.) or might be general. The insured location may be owned, although leased and rented properties might also be covered.
Liability insurance deals with protecting a business from potential losses due to a third-party lawsuit. There are three types of business liability insurance: general liability; professional liability and product liability insurance. Their coverage ranges from protecting a business from potential losses from property damage or personal injury claims to medical malpractice to potential losses from negligence in the manufacture or sale of products, food, medicines or other goods to the public. Casualty insurance is to protect against damage or loss in the business due to negligent acts or omissions that might result in bodily injury and/or property damage to a third party resulting in a claim against the business.
Errors and Omissions (E&O): This is coverage against claims of harm or loss a client or customer might bring due to a mistake the business or its employees made. The money generally covers legal expenses and judgment payments.
Commercial Auto: Personal auto insurance won’t cover vehicles used in business. This coverage will cover damage or loss to company vehicles, and also cover damage caused by the company vehicles.
Business Interruption: This is coverage that protects a business’ cash flow from being stopped or severely diminished by a specific interruption. For example, if you lost a piece of vital equipment that made it impossible for you to carry-on, this insurance would help to keep cash flow stabilized until normal operations resume.
Umbrella Coverage: Umbrella policies are like a booster shot for existing coverage. These plans are used to cover areas not fully covered by other policies, or to offer additional money when a policy has been exhausted and there is still money owed. Many insurers may require you to have multiple plans with them before they will offer you umbrella coverage.
Key Person or Key Employee Insurance: A key person is someone who is essential to the health of a business. If their removal due to death or inability to work would cause a substantial loss to the business, then it would be wise to consider this coverage. In essence, it’s an insurance policy on the key employee naming the business as the beneficiary.
Scripted Policies: If your business needs are not covered by the types of plans normally offered by insurers, you might need a uniquely scripted policy in order to ensure you are adequately covered. An example might be a baseball player insuring an arm, an actress insuring her nose, and so on.
Once you are familiar with the types of business insurance, you will need to determine the amount of coverage your business needs and the costs associated with that coverage and talking to a professional is an important next step.
Talk to a Professional
While there is certainly plenty of research you can do on your own, it is a good idea for your business to have a professional insurance agent or broker to help you select the best possible plans and policies. Insurance is a specialized and very diverse field, so arming yourself with the aid of someone familiar with its details will help you make better decisions.
Ultimately, the types of insurance coverage best for your small business will depend – on your industry, your state, and many other factors. However, there is nothing to fear or be anxious about. By doing some independent research and enlisting the help of a professional, your business insurance needs can be met without increased stress levels.
Some Insurance Terms:
An insurance premium is the amount paid on a monthly, quarterly or annual basis to the insurance company for the agreed-upon coverage under the terms of the insurance contract.
Business loss is a loss that impacts the day-to-day operation of a business such as a loss of income due to a natural disaster or accident, or theft or failure of vital machinery needed to produce a product.
A policy limitation is the limit set by the insurance company determining the maximum amount that will be paid out for a single claim or group of claims within a specific time period.
A deductible is the amount the insured needs to pay out of pocket for a claim before the insurance company pays the balance (subject to the Policy Limitation).
An insurer rating is an independent rating of the financial strength of an insurance company.
For More Information:
You can learn more about types of business insurance here:
A key employee life insurance checklist of items to think about when comparing potential providers:
You will likely have many things to discuss with an insurance agent or broker. Insure U covers a wealth of small business insurance topics, so you can enter deeper conversations better prepared: http://www.insureuonline.org/smallbusiness/. It is important with a business decision such as purchasing insurance to get multiple quotes from multiple sources and compare them to ensure you are making the right decision for your business.
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