Get the Lowdown on Insurance
Few things in business--or in life--provide you with an ironclad guarantee. There's no assurance of 100 percent success or 100 percent protection.
That's something to consider when it comes to the potential for lawsuits. There's no way to absolutely, positively prevent someone from suing you. What you can do, though, is prevent anyone from succeeding . . . and from having the litigation take its toll on your company's cash flow.
You do that through insurance. You might see it as a "protection racket" if you view the likelihood of anything happening to your business as remote. But keep this in mind: Most small companies don't have spare cash sitting around to pay the attorney fees and recovery awards that can result from a lawsuit or claim. Besides, insurance is deductible as a legitimate business expense, so it's worth investigating-- if you like to sleep soundly.
Insurance coverage is like vaccination against disease. Here are six smart ways you may not have thought of to ensure that your company can withstand a loss:
- Form a limited liability entity for your company. While not strictly a form of insurance coverage, it can go a long way toward shielding your personal assets (but not business assets) from creditors. Should your business suffer a tragedy, you won't lose your home and personal bank accounts in the disaster.
- Business interruption coverage. This type of insurance is designed to ensure that your business can continue to operate when you're injured or otherwise incapacitated. Property insurance may replace what's been damaged, but what will replace the lost profits, taxes and salaries that still need to be accounted for while you're trying to get back on your feet? That's where this type of coverage, also referred to as business continuation coverage, is helpful.
- Malpractice/errors and omissions coverage. Because of the nature of their work, professionals are involved in very sensitive areas of a client's business. Harm to those areas can cause significant loss. Imagine a computer consultant whose insertion of computer code crashes a client's network. As a result, malpractice insurance (for licensed professionals such as doctors, lawyers, architects and accountants) and errors and omissions insurance (for other service professionals) are highly recommended. Some states' laws do not permit professionals to hide behind their limited liability entities to escape personal liability for damages.
- Employment practice coverage. This type of insurance helps a company defray costs and legal fees once an employee-related claim has been made. For the past 10 years, the Equal Employment Opportunity Commission (EEOC) has received more than 75,000 complaints each year of various forms of employment discrimination. In fiscal year 2005, damages paid amounted to more than $104 million. Companies tend to skimp on both insurance and employee training, handbooks, etc. Training and handbooks let employees know what kind of conduct is expected of them and what's prohibited. Providing such tools may reduce your rates for the insurance coverage. With employee-related litigation on the rise, it makes sense to investigate how this form of insurance coverage can protect you.
- Disability/long term care coverage. For many entrepreneurs, the income they receive from the business is their only income stream. What happens if you need to take an extended leave of absence for medical reasons? It's not such a far-fetched scenario. Disability insurance can help provide you with "wage replacement" funds so that you can continue to meet your expenses, despite a reduced ability (or inability) to work. But if the disability is chronic, you may have a number of other expenses the disability insurance won't cover--such as in-home care. That's where long-term care insurance comes in. Imagine a serious accident that has an extended recuperation and rehabilitation period. State disability funds may not provide adequate coverage for an entrepreneur.
- Key person/life insurance coverage. Have you planned for catastrophe? If you, a business partner or a key employee of your business dies, do you have the funds to keep your family and your company going? Especially if your business has other owners, you want to be sure you have the cash on hand to buy back that owner's interest in the business . . . and this insurance helps you do just that.
Don't try to handle this all on your own. A competent insurance agent or broker can review all of the options and provide you with quote comparisons. If you don't have one, ask your colleagues or trade association for referrals. Make sure that the agent or broker has experience with businesses like yours.
Nina L. Kaufman, Esq. is an award-winning attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.