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."
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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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