How to Make Sure Your Business Has the Insurance it NeedsDiscover four must-haves and a handful of other types you should strongly consider.
You’ve invested heart and soul into your small business. What insurance coverage do you need to protect it?
Don’t just go by what’s legally required. Few types of insurance are required by law. The real question is whether the money you’ll save by not buying a certain type of insurance is enough to outweigh the risk to your business if something goes wrong.
Steve Kramer, attorney and founder of The Kramer Law Firm, assists business clients through the startup process and represents them during litigation. He explained that insurance does not change your liability if something happens at your business, but it will protect your business’ assets.
“If you don’t have insurance, it could cause the company to go out of business,” said Kramer.
“In one of the first cases I had I represented a gas station, and one of the employees had been shot at work.” As a small business in Florida, the client wasn’t required to have workers’ comp insurance. “But,” said Kramer, “the way it works is, if you’re hurt at work, it’s a pretty strict liability standard.” If the company didn’t have insurance, it would have had to pay out of pocket and would have lost their business as a result.
Today there is insurance available for just about anything you want to insure. Attorneys and business consultants can offer you guidance based on your specific business.
Insurance costs vary widely, so be sure to meet with several insurance agents for their recommendations and quotes before buying a policy.
Kramer advised that these four insurance policies are imperative:
Workers’ compensation insurance. This provides a cash benefit or medical care for a worker who is injured or becomes sick as a direct result of his or her job. Some states don’t require it, some require it for every business, and some require it only for businesses of a certain size according to the National Federation of Independent Business.
You can obtain workers’ compensation coverage through a commercial carrier, on a self-insured basis or through your state’s workers’ compensation insurance program.
General liability insurance. This protects your company’s assets for a wide range of issues up to a pre-determined maximum coverage. The broad coverage of a commercial general liability policy might include medical costs associated with bodily injury on the premises, damage to property while at the business and damage a business might cause as a tenant to the landlord’s property.
If your business doesn’t own property, Kramer recommended that you start with a commercial general liability policy and customize it with riders for additional coverage based on the needs of the business.
Errors & Omissions (E&O). If your business provides a service, you need this insurance, also known as Professional Liability Insurance (PLI) or Professional Indemnity Insurance (PII). It covers professional advice, such as that of an attorney, which could be considered negligent by the person to whom the advice is provided. This protects your business against claims for financial losses as a result of the professional advice given. In some cases, as with physicians, the policy also covers bodily injury and is commonly called malpractice insurance.
Commercial Property Insurance. This covers the loss and damage of company property due to an event such as fire, hail, vandalism, even civil disobedience.
Kramer said these policies are a good idea:
“Key Man” Insurance. This protects the business should an owner or employee whose knowledge is a key asset to the business die. Kramer recommends it for small businesses, especially partnerships, because it can:
- Pay off the company’s debts
- Keep the business afloat until a suitable replacement for the “key person” can be hired
- Buy out the deceased’s shares in the partnership, preventing the remaining business partners from being forced into partnership with the deceased’s spouse or family members, who might have no knowledge of or interest in the business.
Owned and Non-Owned Vehicle insurance. “I always tell business owners as part of the general liability policy to get insurance for owned and non-owned vehicles,” Kramer said. “If they’re at work and they are driving, the company can be vicariously liable.” Something as simple as an employee running to the store in his own vehicle to buy plates and napkins for a company lunch can become a nightmare for the business if the employee has a car accident while running that errand.
Crime insurance. This protects your business from losses due to burglary, theft, robbery and disappearance of property committed by an outside party. If a theft is perpetrated by an employee, a fidelity bond will reimburse the business for its losses. Recently cyber insurance, which protect a business in the event of a cyber attack, has gained popularity.
Disability insurance. This provides the employee partial wage replacement for sickness or injury that is not work related. Disability is currently required only in California, Rhode Island, Hawaii, Puerto Rico, New Jersey and New York.
Business interruption insurance. This covers you for loss of income if your business must remain closed for some time after an incident. It could, for example, help pay staff salaries if a natural disaster like a forest fire kept the business closed during an evacuation.
Industry specific insurance. If you have a business or professional license, you may be required to have industry specific insurance coverage. Construction companies, for example will need different coverage than a frozen yogurt shop.
Home-based business insurance. This might be necessary if you operate your small business from your home. Your homeowner’s insurance policy will not generally cover your business equipment or merchandise.
Sam Williamson of AceWorkGear in the United Kingdom thought his homeowner’s insurance would cover the business he operated from his home. “So,” he said, “when I had a business computer stolen and contacted my insurance company to get a replacement, I was shocked to find that I wasn’t covered for loss, theft or damage of any of my business equipment.”