Insurance As An Investment

Insurance for Your Small Business

Every business needs insurance. The success of a business, whether run from the corner of your kitchen or a Fortune 100 company is dependent upon many things working synergistically. But no matter how successful your business becomes, one disaster can wipe out your entire company. The key to making sure that all the effort and money you have invested in a business doesn’t disappear when a disaster strikes is to protect it with the appropriate insurance.

Only you, as the business owner, know what is adequate insurance coverage for your operation. If you do not feel the possibility of risk of loss outweighs the payment of yearly premium, then going without insurance may work for you. In that case, you may simply want to self insure. For most small businesses, a loss can be catastrophic, and the premium cost is worth the peace of mind.

You need to not only be aware of the amount of insurance you want to carry, but also what is insured. All insurance claims are based on five considerations, involving the person, property, peril, exclusions and conditions.

• Is the person involved in the loss or accident an insured person under the policy?
• Is the property being claimed listed on the policy declarations?
• Is the peril (cause of loss) a covered loss under the policy?
• Is the event causing the loss or accident excluded under the policy?
• Does the loss or accident meet the conditions set forth in the policy?
• Is it limited in any way by the conditions set forth in the policy?

Each of these must be addressed when determining what insurance you want to carry. Your first step should be to take stock of what it is that you want loss protection for. Here are some items you may wish to carry insurance on:

• Equipment (computers, furniture)
• Inventory
• Buildings, land or fixtures
• Liability
• Business Interruption
• Vehicles registered to the business
• Vehicles owned by you
• Any vehicle, even those owned by employee while being used in the business or which your business temporarily uses
• Key employees in the business

Decide how much each is worth, should a loss occur. Be realistic. You want to have sufficient insurance, but you don’t want to pay for more than you need.

Once you know what you want to insure, decide what kind of coverage you need. What is it you would like to be protected from? Everything possible or fire, theft, catastrophes, accidents, loss of income?

You will also need to determine who you would like to cover: all employees, some, customers?

With this information, you can locate an insurance agent to fit your needs. Also, discuss the exclusions and conditions which exist on the policies which exist on the policies of the insurance companies the agent recommends. Will any of these exclusions or conditions serve to restrict your operations? If so, find another policy or ask if there are endorsements (an alternation to your policy) that can be added.

For those of you operating home-based businesses, take a close look at your homeowner’s policy. Most homeowner policies limit, or even exclude, coverage for any business-related equipment. This includes computers, fax machines, laptops and inventory. You may be able to get an endorsement to cover your home-based business on your homeowner’s policy or buy a limited insurance policy tailored specifically towards home-based businesses.

Types of Insurance to Consider

A major fire at your worksite or even a minor fall by a visitor can have a devastating effort on your business. So how can you protect your small business from big financial losses? You can start with two critical kinds of commercial insurance that are often packaged together in a Business Owner’s Policy (BOP); property insurance and liability insurance.

Property Insurance

This insurance covers your physical assets: your building, equipment, furnishings, fixtures, inventory, computers, valuable papers, records and more. But property insurance an also provide income if your business is forced to suspend operations after a covered loss.

Liability Insurance

Business liability insurance is specifically designed to protect your business assets if your company is sued for something it did or even didn’t do that resulted in bodily injury or property damage to someone else. Many insurance providers bundle the primary property and liability insurance coverages you need into an economically priced business owner’s policy. You can then tailor your insurance package by extending the coverage limits in specific areas or adding options to cover risks that are inherent to your industry.

Commercial Auto Insurance

Even if you have personal auto insurance, you still need commercial auto insurance. That’s because vehicles involved in an accident while engaged in company business may not be covered by the personal policy. To make matters worse, you could be charged with misrepresentation if you’ve placed a vehicle you use for commercial purposes under your personal auto policy.

There are a variety of coverage for your commercial autos. The discussion should include business-use autos, pickups, vans, trucks and non-owned and rented vehicles. You may also want to include “non-owned” vehicles used by employees for business and rented vehicles when an employee travels and neds to rent a car.

Errors and Omission Insurance

Regardless of what kind of business you own, customers can claim that something you did on their behalf was done incorrectly, and that this error costs them money or caused them hardship in some way. In this litigious world we live in, many business owners protect themselves with Errors and Omissions Insurance when any business provides advice, makes educated recommendations, designs solutions or represents others such as teachers, consultants, software developers, ad copywriters, Webpage designers, placement services, telecommunications carriers and inspectors.

Although a formalized contract with your client can help limit your liability, the big expense in an Errors and Omissions claim is the legal defense needed to proved liability or innocence. Errors and Omissions Insurance is designed to cover many of these defense costs and ultimately the final judgment if the business owner does not win the case.

Specialized Commercial Insurance

Does your business face unique risks such as hazardous chemicals or manufacture food products that may be vulnerable to contamination and product recall? Or do you often carry tools to your customer’s worksite and need to make sure your property is protected off site as well as on site? Some commercial insurance companies offer specialized packages for certain types of small businesses as well as optional coverage for certain types of risks not generally covered under your regular business insurance.

Umbrella Insurance

An umbrella coverage extends your business insurance beyond the limits of your basic coverage. Umbrella insurance is important because it covers unsuspected events. It is not expensive and in certain instances, it could literally save your business. Basically, an umbrella coverage provides additional liability insurance after the limits of your underlying policy are reached.

Worker’s Compensation Insurance

As soon as you hire your first employee, you need the protection of workers’ compensation insurance. Not only do many state laws require it (California is one) but it could save the financial security of your company.

In general, workers’ compensation represents a compromise between employers and employees regarding employment-related injuries or illnesses. In short, employees relinquished their right to sue employers if they suffer job-related injuries or illnesses in exchange for employers providing a state-mandated benefit. Employers must purchase workers’ compensation insurance as their financial assurance that they have the ability to pay any claims filed by their employees.

Most workers’ compensation insurance policies provide two types of coverage:

• Workers Compensation Coverage – this type provides benefits for injured workers as required by state law regardless of who is at fault for the injury or illness. In other works, whatever benefits your state requires, your workers’ compensation policy will provide it.
• Employers Liability Coverage – this additional coverage protects employers in case they are ever sued for damages arising from employment related accidents or illness. However, to collect benefits provided by employer’s liability coverage, both the employee as well as anyone else not covered by workers’ compensation laws (i.e. spouses and dependents) would have to prove that the employer was actually legally responsible for the employee’s injury or illness.