Small Business Insurance
Insurance is another "icky, yucky, pooh" part of small businesses. Few people get excited about business insurance! But, adequate business insurance can be just as necessary as personal insurance.
A Few Key Types of Business Insurance To Consider:
Product Liability Insurance is designed to protect you from liability suits arising from customer use of your product. Depending upon your product or service, this may be quite expensive.
When considering your product, think about its inherent safety or lack of it. Try to sell "safe" products. There are currently many lawsuits against legal products, which function as they are designed, but which are deemed "bad" products by certain political groups. Some products and events are just too expensive to insure against.
Liability Insurance protects your business from general, negligent liability. For example, a customer trips and falls on your property, and you are deemed at fault.
Umbrella Insurance Policies are designed to supplement your other insurance. If the limits are reached on other insurance policies, umbrella insurance kicks in and covers the amount owed above your basic coverage. Be sure you understand what is and is not covered by your umbrella policy (as with all of your insurance). Some umbrellas are bigger than others!
Health Insurance is crucial. Choose individual coverage or have a company plan. Many small business owners elect personal coverage for themselves and their families. Providing health insurance is viewed as a very desirable benefit for employees, but the cost is great.
Personal Disability Insurance is often called, "the forgotten insurance," because few people were aware of it. Today, it might be called "the most-written-about insurance" because we read about it everywhere!
Personal Disability Insurance is designed to replace some percentage of your personal income in the event that you are prevented from earning a living. For example, suppose you work in construction and fall from a building. You survive, but are unable to continue in your business. While medical health insurance covers your medical bills, how will you pay your other bills, such as your health insurance premiums, gas and electricity, etc? If you are dependent upon your income for living money, disability insurance should be considered a necessity.
Workers' Compensation Insurance covers employees who are injured on the job. State law requires Worker's Compensation Insurance for your employees. See State-by-State Resources for more information.
Property Insurance protects your business property from destruction. (when we write "protects," we mean the insurance pays to replace damaged property).
Other types of insurance include:
Key Person Insurance which protects the business from the loss of a key partner or employee.
Business Interruption Insurance protects from catastrophes which interfere with the normal operation of a business.
Many small businesses do not need key person or business interruption insurance.
Some General Business Insurance Guidelines:
Buy insurance to protect you from unlikely, but tremendously significant, losses which could wipe out your business. Because these events are rare, the cost of protecting against such events is reasonable.
However, your basic policies should cover a wide range of possibilities. Buying separate insurance policies which only cover extremely nit-picky possibilities, is both costly and ineffective. For example, disability insurance which only protects you from a certain range of accidents is less desirable than disability coverage which covers a wider range of things, such as non-accident medical illness, which could also disable you.
You can't reasonably insure against events which occur with regularity (with the exemption of people living in flood plains!) Suppose, for example, you wish to buy insurance protecting your accounts receivable from being defaulted upon. The loss of unpaid accounts receivable is a constant, ongoing, business expense. If you wished to insure against it, the insurance company would calculate your company's overall anticipated yearly loss on such accounts receivable. Then it would charge you more than this for the policy. The difference represents the insurance mark-up, which is expected to become profit to the insurance company. The overall effect is that you would be paying more than if you just absorbed the loss directly.
Small and regular losses can't be insured against cost effectively. It is precisely the rarity and significance of the event which demands and allows cost-effective insurance protection.
Try to establish a relationship with your insurance agent and utilize his/her feedback in determining which forms of insurance are necessary for your business.
Self-insurance is sometimes used to describe setting aside money to cover possible contingencies.
More About Insurance:
Risk Management In Small Business: Insurance