How Much Insurance Do I Need for My Business?

For business owners, the ambition of growing a business to the next level is all-consuming, but the rewards are well worth it – financial independence, leaving a legacy, social status, etc. However, with each rung up the success ladder a business owner climbs, the breadth of their risk exposures expands. In most cases, there is only one way to build a particular business, but there are myriad ways it could come crashing down. It takes just one risk exposure to turn a business owner's dreams into a financial nightmare. 

Fortunately, most common business risk exposures can be transferred to an insurance company. These are the five types of insurance your business may need right now.

Liability Insurance Coverage

The most significant risk exposure for business owners is liability claims. Business owners need to protect their assets with various types of liability insurance coverage, including:

General liability insurance: Commercial general liability coverage protects your business against claims resulting from worksite injuries (customers or employees) or damage caused by employees. General liability coverage also covers legal costs, including the judgment or settlement amount.

Worker's compensation and employer's liability: Worker's compensation is compulsory coverage in all states protecting the business against employee injury or death claims. While worker's comp is a "no-fault" remedy, employer's liability coverage protects the business against liability claims made by employees, family members, or third parties seeking legal remedy if the injury or death results from employer negligence.

Product liability insurance: Protects product manufacturers against liability claims resulting from injury or death caused by their products.

Indemnity insurance: Protects the business against claims of financial harm due to negligence, mistakes, or failure to perform. Professionals in legal and financial services need errors and omissions (E&O) coverage, and other professions and occupations, such as consultants and contractors, should carry indemnity insurance.

Umbrella liability coverage: Protects any individual against personal liability claims. 

Property Insurance

For businesses that own or lease their space, property insurance covers equipment, signage, inventory, and furniture in the event of a fire or theft. Standard property insurance policies don't cover losses due to acts of nature, such as floods and earthquakes. 

Business Interruption Coverage

Business interruption insurance protects a business against losses resulting from temporary closings due to fire or other events or circumstances covered by the policy. Most business interruption insurance reimburses the company for lost profits (net profits) and ongoing expenses. Other policies could reimburse the cost of doing business at a different location because the original site can no longer be occupied and used for some time.

Business Overhead Expense Coverage

Another way your business could be forced to stop operating is if you or a partner becomes disabled. A business that can only sustain itself at the hands of one or two key people can be vulnerable to significant financial hardships should they become disabled and unable to contribute as needed. Business overhead expense coverage will cover the business's operating expenses during an extended disability. 

Key Employee Insurance

It's not uncommon for a growing business to rely heavily on the skills, expertise, or reputation of a valuable key employee. The employee could be a business partner, the person behind a key product or service, or someone who has personally built substantial goodwill among the business' most important customers. The death of a key person in these situations could result in the loss of revenue, and finding a replacement could be very expensive.

Update Your Coverage Regularly

Once you have policies in place, review them at least once a year to be sure your needs continue to be met. Check whether existing policies should be changed and whether you need to add new types of coverage.

New products and services: If you have added new products or product lines, or have begun offering new types of services, make sure your liability insurance adequately protects you against claims in those areas.

Increased sales and expenses: If sales are up, business interruption coverage may need to be boosted. If higher sales resulted in adding employees, check your worker's compensation coverage. Also, as your company grows, it may make more sense to protect key executives and directors from liability and lawsuits.

Additional equipment or vehicles: If you have purchased new equipment, property, or real estate, make sure your property coverage is up to date.

 

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