Owning a business, no matter how large or small, means business insurance should be one of your top priorities. When operating costs are too high, many people are tempted to lower their level of insurance coverage. However, you may regret this decision when unexpected circumstances arise.
No matter whether you are a startup company or one with a long history, there are many risks in operating a business you may not be fully aware of. You don’t know what the future holds, so the best way to protect your financial security and guarantee that your company will be able to continue operating through unforeseen events is to ensure that you are protected for most every possible risk.
Business insurance can protect you, your company, and your employees from risks and exposures that may lead to costly lawsuits. The key is make sure that you have the proper coverage in place for your company. Today, you can purchase policies to protect almost every aspect imaginable, but your specific needs will differ from others depending on your type of business. An experienced insurance professional will be able to identify the risks that your business is most likely to encounter and design a policy, or policies, that will ensure you are protected.
Why Do You Need Business Insurance?
Having the proper insurance coverage in place can mean the difference between financial stability and insurmountable losses that may lead to bankruptcy or closures. If you are a business owner, there are many reasons why business insurance is absolutely necessary:
- It Is The Law: Certain types of business insurance, particularly Worker’s Compensation, are required by Federal or State law. It is important that you find out what the rules are for your location.
- It Can Protect Your Company Property: Business insurance policies will usually cover most damage caused by natural disasters (water, wind, hail, etc.) and accidents, fires, or theft.
- It Can Protect You From Personal Liability: If you, your company, or one of your employees or board members are named in a lawsuit, Liability protection will cover most settlements, judgements, legal cost, or medical expenses.
- It Can Protect Key Employees: Extra coverage can be purchased for those employees who are responsible for making important decisions, creating products, or handling financial aspects such as employee benefits or investments. Often directors, officers, and owners are named in lawsuits, and many companies realize the importance of insuring board members or certain employees to protect their personal assets in the event of legal actions.
- It May Be Requested or Required: Many clients or customers will require that certain types of business insurance be in place as a condition of the contract. Also, many people will not accept a position to sit on your board of directors unless they know that they are protected and indemnified by the company which is supported by liability insurance, protecting their personal property and assets.
- It Provides Credibility: When you have a high level of coverage in place, you are showing that you value your employees, volunteers, or customers and that you are willing to take the responsibility of protecting them as best as possible. Many people will trust a business that puts a high priority on the safety and consideration of others and has taken the initiative to make sure that proper protection is in place.
Types of Business Insurance
The business insurance you need is dependent on the type of operational risks you are confronted with during your normal business activities. The actual coverage included in your policy(ies) will be determined by your specific needs, and an educated or experienced insurance professional will be able to design the best coverage for your situation.
Commercial Insurance: Commercial insurance is absolutely essential to the success and health of your company. These policies will cover property damage both on and off premises, liability for bodily or personal injury, medical costs, legal expenses, employee theft, and loss of wages or income due to business interruptions. As a company owner, you may have a lot of money invested in equipment, inventory, or real estate, and a single lawsuit can put everything you have worked for in jeopardy. Protect your assets by making sure that you are insured against all possible risks or exposures.
Director’s and Officer’s Liability Insurance: Everyone makes mistakes, and your directors, officers, or high-level employees are especially vulnerable to lawsuits that may be brought against the company for any real or perceived damages. Whether you are a private company, a public corporation, or a non-profit organization, D&O insurance can protect your board members, advisers, and key employees from personal liability. Many people will not accept a position on a board of directors unless this type of insurance is in place because they do not want to risk their personal assets in the event that they are named in a claim.
General Liability: These policies protect your business against any claims of personal injury or property damage filed by employees, customers, clients, sub-contractors, visitors, or suppliers. Basic coverage would include any injury or damage incurred on-site, but depending on the type of business or service provided, protection can be extended to also include damage or injuries caused off-premises. Coverage may include bodily and personal injury, property damage, medical payments, and legal expenses.
Health Insurance: In most cases, providing health benefits is optional for employers, but offering group medical insurance to employees can help your business attract and retain the best and most qualified workers. Also, you can better ensure the ongoing health of your employees, since insurance plans offer preventative care and the ability to get yearly physicals. And if that isn’t incentive enough, the amount you pay toward employee premiums may be tax-deductible. Explore your options and call for a free quote.
Professional Liability/Errors and Omissions: General liability insurance policies address property damage and personal liability, but they typically don’t extent to problems resulting from professional error, negligence, omissions, or faulty performance. If you provide a service to others then you are vulnerable to lawsuits. In some states, specific professions, such as those associated with health care, are required by law to carry E&O insurance. By neglecting to add this type of insurance to your portfolio, you could be forced to pay any losses that are not covered by your general liability policy. E&O policies will protect your personal assets and pay settlements, legal costs, and most other expenses incurred as a result of a lawsuit.
Rental Properties: Renting can be profitable, but it also exposes you – the owner – to additional liability and property damage risks. It is important to have an insurance policy in place to protect your investment as well as your personal assets. You will be covered for accidental damages, injuries to individuals while on your rental property, loss of rental income, and most theft or damage caused by your tenants.
Special Events: Large events and gatherings such as conferences, fundraisers, auctions, banquets, or festivals require short-term liability coverage to ensure that you and your company are protected from any unexpected circumstances. The specifics of the policy will vary depending on the event but may include such things as general liability, liquor liability, medical expenses, non-owned vehicle coverage, or rental equipment damage.
Surety/Bonds: There are many different types of bonds available depending on your business needs, but the two most common are Surety and Fidelity. Surety, also known as a performance bonds, guarantee that a job will be completed, even if the contractor defaults. A surety bond is often required as part of a bid, particularly for government contracts, because the city/town doesn’t want to pay for uncompleted work. A fidelity bond, also known as an honesty bond, is often obtained by business owners who have employees working at a client or customer’s premises. It is designed to protect both the business and the client from the dishonest acts of employees, specifically theft.
Umbrella/Excess Insurance: If your business may be vulnerable to higher limit lawsuits, you may want to consider adding an umbrella or excess insurance policy to your portfolio. An excess liability policy will cover losses that exceed the limits of your general liability policy. It has the same terms and conditions as your primary policy and will become active once the limits of the underlying policy have been exhausted. An Umbrella Policy works much the same way; however, it received its name because it can cover multiple primary policies at the same time. It may also have a “drop-down” feature, meaning that it can offer broader coverage than the primary policy.
Worker’s Compensation Insurance: Employers are required by state law to purchase Worker’s Compensation Insurance for all employees. This coverage protects business owners from lawsuits filed by employees claiming that they were injured or became ill while meeting their job expectations. Policies will vary depending on the state in which you live, but they will typically include protection for such things as loss of income, medical expenses, rehabilitation or retraining, financial settlements, and death benefits for surviving dependents.
Fiduciary Insurance: Anyone responsible for designing, managing, and administrating profit-sharing or employee benefit and pension plans may be at a higher risk for lawsuits. Federal law states that fiduciaries can be held personally responsible for any losses resulting from errors, omissions, breach of duty, or illegal activity, whether alleged or real. The proper insurance will protect your key employees, particularly those who make important financial and investment decisions, from lawsuits and guarantee that their personal assets are not put at risk.
Having the right business insurance for your company is critical to your financial security. A good insurance agency or brokerage should be able to look at your situation and determine exactly what you need. This is one area that you cannot afford to cut corners. Talk to a professional who is experienced with your type of business and make sure that you are protected for every risk that you might encounter.