Running any business comes with risks. So it's important that you protect both your business and your personal assets. That protection, however, comes in many different forms, which can be confusing for any business owner. For instance, the form of doing business you choose, such as a corporation, partnership or sole proprietorship, can affect your protection and liability.
Of course, one very important tool for protecting your business is insurance. With insurance, comes a plethora of issues to consider: what type you need, the appropriate amount of coverage, and the deductible and the premium. Then there's the matter of which insurance company offers the best products for your particular business. In the beginning, you may need to consult several professionals, including a lawyer, accountant, banker and insurance agent for assistance.
Here are various types of insurance you should consider, several of which may be packaged together in a business owner's insurance policy or a comprehensive general liability policy:
- Liability insurance provides protection if you're sued on a claim covered by the insurance. The insurance company is authorized to pay for your legal defense, settle the claim and pay any judgment within the policy limits. The types of claims commonly covered are damage to other people's property and bodily injury to customers, bystanders or anyone else who may come into contact with your business. Be sure the policy provides coverage if your business uses an automobile or truck. Also, if you make or sell a product, consider product liability insurance. Given that claims and litigation are all-too-frequent in our society, liability insurance should be a top priority.
- Property insurance covers losses from physical damage to your property or loss of use and should cover the contents. An all-risk policy is preferable since it covers losses under most circumstances, such as fire, theft and vandalism. Depending on your location, you may also want flood and earthquake coverage. Replacement cost insurance will replace your property at current rates, which likely will be higher than what you originally paid. Even if you have property insurance, it's always wise to keep copies of important documents, policies, business records and computer backup disks at a separate location to avoid loss.
- Business interruption insurance will pay your bills, payroll or loss of profits if your business is forced to stop for a period of time by one of the covered causes, such as a fire or other catastrophe.
- Workers' compensation insurance is usually required by law for small businesses with employees. This insurance provides benefits for employees who are injured or die from job-related causes. The legal requirements vary from state to state, but there's generally a penalty for operating without such insurance.
- Health insurance may be required by law, depending on your number of employees. Most very small businesses, for instance, aren't required to carry it. Group plans and purchasing pools are an option, but the cost is often high. Small businesses frequently don't provide health coverage for this reason.
Depending on your circumstances and finances, you may also want to consider other types of insurance, such as life insurance, key-employee insurance, fidelity insurance to cover employee theft and glass insurance. And if you're working out of your home, you may need additional coverage since most homeowner's policies exclude claims arising from operating a home based business.
An insurance agent is the person best suited for evaluating your business's insurance needs. Your agent should assemble a proposal package of insurance quotes from different companies. If the agent deals with only one company, you may need to consult more than one to obtain additional quotes for the same type of coverage. And remember: Providing business premises that are safe for customers and employees can greatly reduce the risks of being in business.
Jeffrey Steinberger is a veteran trial attorney and the founder and senior partner of The Law Offices of Jeffrey W. Steinberger , a Professional Corporation in Beverly Hills, California. He is also a renowned celebrity attorney, TV legal commentator and analyst, federally appointed SEC arbitrator and professor of law.