Business insurance is important because there are many threats and risks that can harm an organization’s operation.
If you lose a lawsuit, it’s important to understand that judgements can be collected through bank seizures and wage garnishments.
In some circumstances, even if a business is incorporated, the corporate veil won’t protect the business owner from being held personally liable for debts through personal assets.
The Small Business Association says, “Business insurance protects your investment by minimizing financial risks associated with unexpected events such as a death of a partner, an injured employee, a lawsuit or a natural disaster.”
Lawsuits are not the only concern for business owners. Disasters can strike at any time, causing a serious financial crisis. Insurance coverage helps companies plan for unforeseen damages caused by both natural and man-made disasters.
Liability Insurance
Since accidents are unpredictable, liability insurance is very important for business owners. Whether those accidents happen on-site or off-site, with an employee or with a customer, your company might be liable.
It's a good idea for a business owner to have liability insurance because it covers attorney fees, medical expenses, and any damages your company is legally responsible for.
Here are two types of liability insurance you will want to consider purchasing:
- Professional liability insurance is also called Errors and Omissions Insurance. It's exactly what it sounds like. This type of liability insurance protects service providers from claims of failure to perform their professional duties, or any claims that the service provider omitted important information or facts. Professional liability insurance is applicable for any service-based firm, like accountants, attorneys, insurance agents or cosmetologists.
- If your business creates products, you'll want to make sure you have product liability insurance. This covers you in the event the product you sold, manufactured or distributed causes bodily injury or property damage.
Property Insurance
Property insurance is important for business owners who need to protect themselves against the risk of losing their property, like computers, equipment, inventory, supplies and building, to fire, theft, vandalism, and weather. It's important to note that this type of coverage includes several specialized forms of insurance like flood, fire, and earthquake insurance.
You may even want to consider mobile device insurance coverage, which specifically covers the mobile devices you have provided your company’s employees.
Business Interruption Insurance
Business interruption insurance covers any lost income a business experiences after a disaster. The disaster could be related to the closing of your business, a fire in the building where your office is located, or a street closure that keeps customers from accessing your business.
Many new entrepreneurs don’t purchase business interruption insurance because of the cost, but Carol Tice, contributing author at Entrepreneur.com says, “businesses may want to reconsider interruption insurance given the rising number of natural disasters.
The annual total has increased from 400 major incidents in a typical year to more than 600, according to a recent survey from global insurer Allianz.”
Disability Insurance
Disability insurance is coverage that will provide you with income if you are unable to complete the core responsibilities of your job. Disability insurance helps replace a good portion of a business owner's income in cases of injury or illness.
In a 2013 Forbes article, Ashlea Ebeling debunks “5 Myths About Disability Insurance.” She says "[l]ong-term disability payments don’t replace your salary; they provide a buffer, usually 60 percent of your salary.
That means that most recipients have to adjust their lifestyles and priorities: of those interviewed for the report, 85 percent cut back or completely stopped saving for retirement, and 58 percent skipped or delayed some medical, dental or vision care for themselves or family members."
Workers’ Compensation
Workers’ Compensation insurance protects your company from legal exposure and provides benefits like medical treatment, temporary and permanent disability, and death benefits to employees for injuries and illnesses that occurred while they were employed by your company.
In exchange for workers’ compensation insurance, employees give up the right to sue your company for the incident that has caused them the illness or disability.
As a business owner, it is very important to secure workers’ compensation because it is required by law in all states and it protects your company from legal complications; however, there are some exemptions. Business.com contributing author, Sam Meenasian, says the following:
- Depending on the state where your employees do their work, you may find exemptions contingent upon the location or industry of employment. In many states household domestic servants are exempt from needing coverage.
- While most states require Workers' Compensation for any business, 11 states have employee threshold numbers that require only businesses with that number of staff or higher to have this insurance. In Virginia, for example, businesses with three or fewer employees are exempt.
Health Insurance
You might not think providing your employees with health insurance coverage, and a benefits package that includes paid sick days, will protect your business from potential losses, but think again. The Center for American Progress estimates that unhealthy workers cost employers some $160 billion a year in lost productivity.
It has been challenging for businesses navigating the healthcare reform landscape here in the U.S. While the SBA offers some guidance, many employers are still slowly adapting to the changes.
Health care coverage abroad is important as well if your company sends executives to other countries to do business. It’s important to refer to your company’s policy coverage to determine if employees will be covered while performing their duties in other countries.
There are a few other things your expatriates should know. David McKeegan, contributing author at the Wall Street Journal provides great advice in his article “5 Things Expats Need to Know About ‘Obamacare.’” Any expatriates traveling on vacation should learn more about EHIC coverage. This insurance provides access to state-provided healthcare on temporary stays in the UK and 31 other European countries.
Commercial Auto Insurance
Having a couple of your work vehicles out of commission could create a serious kink in your workflow. Also, any accidents you or your employees have while driving a company vehicle can create huge financial issues for your business.
Commercial auto insurance protects your company’s vehicles. It also covers any bodily injury or damage caused by the accident that you are responsible for. If you don’t own any commercial vehicles, but your employees regularly use their own private vehicles to do company business, it’s a good idea to purchase non-owned auto liability to protect your company in cases where an employee is driving uninsured or underinsured.
Directors and Officers Insurance
Directors and Officers (D&O) coverage typically covers any costs or damages as a result of any directors or officers in your organization being involved in a lawsuit. Directors and Officers coverage helps protect your organization from any potential actions that could affect the company’s ability to operate.
According to an Inc. article, “[o]ne in six company executives, or 17 percent, believe their business will experience a D&O related loss in the next years, according to a survey of decision-makers at 451 U.S. companies, more than 90 percent of which had annual revenues of less than $25 million.”
Conclusion
Smart companies purchase business insurance as a risk management tool. By paying a premium, the business transfers the risk of any potential loss to an insurance company. This article does not serve as legal advice nor does it provide a complete list of insurance coverage a business.