Armor Yourself

To protect against calamities that could cripple or ruin your business, consider insurance that goes beyond the obvious coverage.

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All business people know they need insurance. But once you have the usual bases covered — property, vehicles, life, health — are you “bulletproof” against calamities?

Not likely. All manner of misfortunes can strike without warning at your business and your livelihood. The good news is that you can protect your business and those who rely on it with a comprehensive suite of insurance coverage that provides the financial means to survive almost any form of bad luck.

While the types of important coverage are easy to list, the detail of insurance plans can be daunting, especially in the insurance-speak of many advisors. Business policies contain many complicated variations and levels of coverage. They may also lack important areas of coverage you need for your business to survive a catastrophic loss or claim of liability.

Prevention Planning

The prudent business owner develops a well-thought-out loss prevention plan and works with a trusted and knowledgeable insurance professional. The best insurance people are knowledgeable in many areas of business. Particularly important is knowledge about business operations and finance — not just insurance.

“Small business owners are busy running their businesses, trying to earn a profit, and grow,” says Steve Ford, a State Farm agent in Manitowoc, Wis., and a consultant for many small-business owners.

“They need to form a partnership with a knowledgeable insurance professional who can educate them on the risks they face and the options they have to address them. The owners also need to perform due diligence in checking out the company that is making them promises in the form of an insurance policy. Know the company you are doing business with, not just the agent.”

Don’t buy on price alone. Check or your library for the insurance provider’s standing with A.M. Best, a company that rates insurers. Search the Internet for more small-business insurance information. A good place to start is, site of the Independent Insurance Agents & Brokers of America.

Shop around. Ask several agents to evaluate your insurable risks, and listen to their ideas. It helps to arm yourself with an insurance checklist as you do this. Listed below are a series of insurance needs you may have, as compiled by the U.S. Small Business Administration and professional advisors. You can use it as a start to assessing your company’s insurance needs.

General liability

Many business owners buy general liability (umbrella liability) insurance to cover legal hassles from claims of negligence. These help protect against payments that may result from claims of bodily injury, property damage, medical expenses or other losses connected in some way to your business.

The insurance can also cover the cost of defending you in lawsuits, and the costs of settlement bonds or judgments required during an appeal procedure. Make sure your protection includes coverage for claims of wrongful employee termination.

Home-based business insurance

Homeowners’ insurance policies do not generally cover home-based business losses. If you operate from your home during your start-up phase or for the long term, you probably need additional insurance for business property, professional liability, personal injury, advertising injury, loss of business data, crime, theft, and disability.

Product or services liability

Virtually every product is capable of inflicting some type of personal injury or property damage. Companies that manufacture, wholesale, distribute, or retail a product may be liable for its safety. Additionally, every service rendered, including advice given, may be capable of doing injury in some form.

Businesses are considered liable for negligence, breach of an express or implied warranty, defective products, and defective warnings or instructions. You may not need anything like the malpractice insurance your doctors carry, or errors and omissions insurance an engineer should have.

But that doesn’t mean you’re immune to liability related to your professional conduct. Suppose a long-time customer wants to cut the cost of a project by doing some of the work himself. Wanting to help him out, you ask an employee to show how to use one of your waterjetters. Then the worst happens: The customer hurts himself and an employee bystander. Your business could be held liable.

This may be an extreme example (you may not be foolish enough to let an untrained customer use one of your machines) — but the risk of liability remains real.

Worker’s compensation

Required in every state except Texas, worker’s compensation insurance pays for employees’ medical expenses and missed wages if they are injured while working. The amount of insurance you must carry, the rate of payment, and the types of employees you must cover vary depending on the state.

While you as the business owner may be exempt from such coverage, your employees must be covered. Likewise, people you hire as independent contractors could be treated like employees and therefore might need the insurance. Salaried professionals like a bookkeeper may not need to be covered. Here’s a case where advice from a professional is helpful.

Business interruption insurance

You may wish to carry insurance covering losses during natural disasters — fires, floods, tornadoes, hurricanes or other catastrophes that may force you to shut down for a significant amount of time. Consider protection against Internet vandalism from viruses and direct attack that could damage your website and databases.

Criminal insurance

No matter how tight security is in your company, theft and malicious damage are always possible. While the dangers that go with hacking, vandalism and general theft are obvious, embezzlement is more common than most business owners think. Criminal insurance and employee bonds can protect against losses from most criminal activities.

Key person insurance

Sometimes overlooked is protection of your business from loss or long-term illness of a partner or a key employee — someone who has special expertise that you or your customers depend on, and whom you cannot replace without great difficulty.

Be sure to also insure yourself as a key person for both the business and your family income to safeguard your spouse and family. Develop a business continuation plan that outlines how your company will maintain operations in the case of the loss of a key person. Typically, this coverage consists of life insurance that names the company as a beneficiary if an essential person dies.

A key person can also be disabled and therefore unavailable, and you should plan for that possibility, too. Disability is not covered by a life insurance plan. Ask your insurance advisor about options.

Health and life insurance

You need to carry health insurance and adequate life insurance to protect your family. How much life insurance is a tricky question, and that’s an area where an unbiased professional can help.

Your personal needs aside, there are sound reasons for small businesses to provide health and life insurance for employees. Offering a good term life insurance policy and comprehensive health insurance policy will help you recruit and retain good employees. It will also help employees stay healthy and productive. Healthy, worry-free and productive employees are vital to long-term profitability.

Final Thought

It is important to plan for a broad range of insurance coverage, beyond the obvious items of vehicle and property insurance. Otherwise, a calamity can kill your business and the livelihood on which you, your employees and their families depend.

Especially when you are expanding, you need to make sure to ask your agent if your policies need enhancing.

Murphy said it best: “Whatever can go wrong will.” And, most often, at the worst possible time. With a good insurance plan in place, you can be ready for it. n


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