Are You Covered?

Finding the right business insurance to weather any storm.

With insurance, as with so much else in life, the devil is in the details.

If you own a house or a car, you may already have insurance that covers you in the event of theft or an accident. But if you own a small business, the fine print on those policies could expose you and your assets to catastrophic losses--and even confiscatory lawsuits.

Remember Murphy's Law: What can go wrong will go wrong, and at the worst possible moment. "Murphy is alive and well and living in every small business," warns Virginia Beauchamp, vice president of the National Association for the Self-Employed (NASE) in Washington, DC. "Everybody needs to understand that a sole proprietor is responsible for everything that happens in his or her business."

In fact, typical insurance coverage leaves wide gaps when it comes to protecting sole proprietors and small-business owners. Loopholes such as these can put you temporarily--or permanently--out of business:

  • While traveling to see a client, your car is rear-ended and totaled as you sit patiently at a stoplight. Even though you're not at fault, you still may not be able to collect any insurance money, because your policy specifically excludes coverage for accidents that occur while using your automobile in the course of business.
  • A fire in your kitchen spreads to the spare room, where your office is, destroying important files and seriously damaging your computer equipment. The claim for your equipment is denied, because your homeowner's insurance doesn't cover business-related losses.

In both scenarios, adequate coverage could have been available as "riders"--or extended agreements--to your existing coverage, and for relatively inexpensive annual premiums (generally, a few hundred dollars or less).

"Close to 80 percent of sole proprietors and small-business owners are not insured to the full extent they should be," says David Hanania, founder and president of the Home Business Institute (HBI), a national network of small-business owners in White Plains, New York.

Nevertheless, many small-business owners get blindsided, either because they don't read the fine print in their existing policies, or because they're too busy to take out the insurance coverage they really need.

"Insurance is an item these busy people don't get to quickly enough, especially if they feel they don't have any liability exposure," Hanania explains. "But in the litigious society we have, they may wake up one day and find they do."

But the growth of small and homebased businesses is urging insurance companies to offer more affordable coverage for entrepreneurs.

How much protection you should have depends on many factors, including a reasonable assessment of your risks, the vulnerability of your assets, the amount of protection available and how much coverage you want and can afford.

Freelance writer Christopher Kenneally answered the question: "Can You Start In 30 Days?" in the July issue of Business Start-Ups.

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This article was originally published in the September 1997 print edition of Entrepreneur with the headline: Are You Covered?.

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