June 13, 2018
Unbiased Financial Information Provided by Financial Finesse
When a friend of mine got laid off from his job recently, he decided to start a dog-sitting business. One of his first charges was a prize-winning pooch whose "parents" went off to Maui for a second honeymoon. Just around the time his clients were checking into their beachfront bungalow, my friend lost their dog. Hours later, the couple was back on a plane, heading home to hunt for their pup. Although Spot did turn up a couple of days later, my friend couldn't avoid a lawsuit.
As a business owner, you put yourself and your business on the line every day. While no one wants to think about the "What ifs?" it's wise to assume that your luck might run out one day. With the right kind of insurance, you can stop worrying and keep working.
Types of Insurance
Below are the most common types of business insurance:
- Property. This covers the contents and physical structure of your rented or owned building for hazards like fire, theft, vandalism, and damage caused by nature (such as a flood). Get enough insurance to cover your building's cost if you own it, even if that means you opt for a higher deductible. If renting, your lease may require a certain amount of property insurance, naming the building owner as an additional insured.
- Business interruption insurance. Sometimes included in a property policy, this covers operating expenses and lost income if your company has to vacate due to a catastrophe like a flood or fire. Make sure your policy covers you for more than a few days.
- Liability. This important policy can cover business premises (a customer slips on your wet floor), product liability (your bakery's brownies sent someone to the hospital with food poisoning), auto liability (your assistant hit a pedestrian while driving on company business) and professional liability (as an accountant, you made a mistake in managing your client's finances). Professional liability is also known as errors and omissions insurance. It doesn't only pay claims and judgments, but can provide legal representation for a lawsuit as well. You may need several different liability policies, depending on your business.
- Automobile. If you or your employees use personal vehicles for business, your individual auto policies are probably adequate. However, if you move equipment from site to site, the limits on your auto or homeowner's policy will probably be too low. Ask your agent about a business owner's policy, which would provide higher coverage for equipment.
- Life/disability. Disability insurance pays if you can't work due to a physical or mental illness or injury. If you don't have a financial cushion, make sure the waiting period is on the shorter side; for most policies you'll wait 30 to 180 days from the time of the injury until payments begin. Adequate life insurance should cover at least housing and general living expenses for your family and the cost of an education for your children.
- Key person insurance. If your company (generally not a one-person operation) relies on an individual for a majority of the income, brainpower, production, or industry contacts, consider this coverage. It's a type of insurance policy naming the company as beneficiary if the key employee dies or becomes disabled.
- Workers' compensation. This is mandatory in all states. Workers' "comp" covers employees who suffer job-related injuries and illnesses, providing payment of medical bills and income while the employee is out of work.
- Health. Even the healthiest people need medical insurance. A case of appendicitis (or any number of other unexpected injuries and ailments) could set you back tens of thousands of dollars in hospital bills. If you can't afford comprehensive coverage, at least consider catastrophic coverage. If you work alone or have only one or a few employees, check with trade groups or your chamber of commerce for group plans you can participate in to get lower rates.
If you're running your business out of a home office, look into policies that combine business insurance with homeowner's insurance. If you have others working in your home, or if clients frequently visit, your liability needs will be greater than those of a computer programmer who sits alone at a desk all day. Comprehensive commercial business policies are inexpensive and offer more security and coverage than a homeowner's policy does.
While you can get quotes and information online, advice from a good agent may be the best way to fully understand the types and amounts of coverage you need.
Insurance is an expense most people would rather ignore. But, as my dog-sitting friend learned the hard way, accidents happen. If the time comes when you suffer a major loss or face a lawsuit, you'll be much happier to file an insurance claim than you will to file for bankruptcy. Ask yourself what you can afford to lose and use the answer to guide your insurance purchases.