Before you discuss business insurance with an agent, do a little legwork on your own.
- First, list the business risks that you worry about. You know these better than anyone.
- Then, find out what business insurance coverage is required where you operate. More than one state? The requirements may be different. Join a related business discussion group to find out what other people in your business carry. Your lenders will have requirements of their own. This process typically results in a short list of “must-haves” and a longer list of other coverage that may be appropriate. This is your raw research.
- Now, interview insurance agents as if you were interviewing a partner in the long-term growth of your business. Make sure that your agent understands your business model, so that you are neither under- nor over-insured. Your business is growing, so your situation may be different in four or five months. See if you can your reduce cost by bundling this protection in a Business Owners Policy or “BOP”.
“Must Have” Business Insurance
The business community generally settles on somewhere between three and six kinds of “must have” business insurance:
- General Liability Insurance. This broadly covers legal claims arising from accidents, injuries and claims of negligence, other intentional wrongs, the cost of defending lawsuits and settlement bonds or judgments.
- Product Liability or Professional Liability (also known as Errors and Omissions) Insurance. You will need product liability insurance if you manufacture, wholesale, distribute or retail a product that might injure someone, even if the injured person is not the buyer. If you produce only a service, professional liability insurance will protect your business against malpractice, errors, and negligence. Lawyers and doctors are already familiar with malpractice insurance, but it applies to any professional advice. If your business offers both a product and a service, you will need both kinds of coverage.
- Commercial Property Insurance. This covers everything related to the loss and damage of company property caused by fire, smoke, wind, hail, civil disobedience and vandalism, among other events. The definition of "property" may include lost income, business interruption, buildings, computers, company papers and money. Make sure that you understand exactly what is covered by this (and all other) coverage. Ask about flood insurance. Does your policy cover a business interruption that might be due to your disability that resulted from the earthquake, even though the earthquake did no damage to the physical property? Are you running a business out of your spare bedroom? Make sure that you have added the necessary riders to your homeowner’s or renter’s insurance policies.
- Legally Required Insurance. If you have employees, you must have workers’ compensation insurance to cover on-the-job injuries. If your business delivers pizza or interacts off-site with clients, you will need commercial automobile insurance. Employers with fewer than 50 employees are generally exempt from the health insurance requirements of the Affordable Care Act in 2014. Nonetheless, providing coverage may have significant tax advantages.
This is the short list.
Other Kinds of Business Insurance
Don’t dismiss these “add-ons” as luxuries for later. These risks may actually pose a more immediate threat to your business than the ones listed above. They will simply be more specific to your business.
- Data Breach. Target. Need we say more? Do your customers use credit cards or share other information?
- Fidelity Bonds. Is it a largely cash business? Are you exposed to the risk of a dishonest employee?
- Life and Disability. Especially in the early years of business growth, you and your business may be very nearly the same entity. Lenders will recognize this and frequently require life or disability insurance to secure repayment. Beyond that, however, consider how the business would actually function if you had to be out of the picture for a time. Look carefully at the differences between long-term and short-term disability policies.
Let’s back carefully out of this scary landscape. There are lots of ways to protect your business from risk. Insurance plays a major role, along with business structure, trademark protection and succession planning. Your job is to be the forward leading edge of the enterprise. Get some help with the flanks and the rearguard.