Good insurance decisions are based on an understanding of what types of coverage are appropriate for the various risks you face. The basic types of business insurance include:
- General liability and property coverage. Liability insurance protects you if someone gets hurt while using your product or service or is injured while on your property. The insurer not only pays the damages but also funds and handles your legal defense. Property insurance covers your physical assets--building, equipment, furnishings, fixtures, inventory and so on.
- Umbrella policy. These policies provide additional liability coverage after the limits of your underlying policy are reached. For example, if someone was injured on your property and required $300,000 in medical treatment but the liability limit of your underlying policy is $250,000, your umbrella policy would cover the additional $50,000.
- Automobile. If you own and operate commercial vehicles, or if you use your personal vehicle for business purposes, the vehicles need to be appropriately insured. If business use of your car is minimal, the necessary coverage can probably be included in your personal policy.
- Professional liability. This type of insurance protects professional service providers, such as accountants, lawyers, doctors, dentists, pharmacists, insurance brokers and agents, and consultants, for negligence or errors and omissions that injure their clients.
- Life. Various types of life insurance can be designed to protect your company. Key-man insurance pays the company upon the death of a key person, usually an owner or senior executive, to help the company deal financially with the loss and replace those services.
- Workers' compensation. If you have three or more employees, you're probably required by law to provide workers' compensation insurance. This coverage pays an employee's medical expenses and provides some income replacement when a worker is injured on the job. Laws regarding workers' comp vary by state; check with your insurance agent and state insurance department to find out exactly what you need and how it's purchased.
- Business interruption. If you're unable to run your business due to a covered peril (fire, storm damage, vandalism and so on), business interruption insurance will replace lost income, pay ongoing expenses and pay costs involved in getting you set up in a temporary facility. You may also get an endorsement to your policy that protects you from financial losses due to the necessary suspension of your operations as a result of a problem at a "dependent property," which is defined as property not owned, operated or controlled by you but on which you are dependent for continuation of your normal business operation.
- Destroyed or damaged records. If your business records are destroyed or damaged by a covered peril, this insurance will compensate you for the inability to collect income and for the cost of reproducing the records.
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