Cover Charge

After choosing an insurance professional, the next step is determining what coverage you need. This is easier in some cases than others. The Collinses, for example, knew they needed liability insurance because their agreement with the Negro Baseball Museum, which licenses them to manufacture its products, requires it.

"Some forms of insurance are required," says Mooney. "In most states, for example, business owners [with employees] need to purchase workers' compensation insurance. You may also need to purchase property insurance as part of a lease, mortgage or agreement with suppliers."

Whether they are required or not, there are five basic types of coverage every business should consider, say Mooney and Fairbrother: property, liability, business interruption, life and disability, and workers' compensation.

The first three are typically included in a business owner's standard insurance package, which most insurance companies offer. However, not all policies provide the same type of coverage.

"Our business owner policies are somewhat tailored to different industries and try to respond to the [needs] of many businesses," says Richard Callahan, a vice president with Aetna Life & Casualty Co. in Hartford, Connecticut.

Homebased entrepreneurs should not assume their business is covered by their homeowner's policy; in most cases, it isn't. However, homebased business owners can buy standard business owners' policies, and several insurance companies are developing products especially for them. Chuck Moran of Bollinger Fowler Insurance in Short Hills, New Jersey, says RLI insurance, one of the companies he represents, targets entrepreneurs working from home.

Here's a closer look at the three types of coverage offered by most business owners' packages:

Property insurance covers your physical location, the contents of your business and, to a limited extent, portable equipment. When reviewing this part of the policy, Mooney advises making sure you're insured for the replacement cost of your equipment, not for what it's worth at the time of loss.

"General liability insurance is the most common coverage for retail, service and homebased entrepreneurs," says Fairbrother. It protects your business from accidents and unintentional injuries to others by covering damage to property and personal injuries. It also assists you financially and legally by paying legal costs if you're hit with a lawsuit.

Business interruption insurance covers lost income if your business cannot function normally for an extended period of time. It can also help pay for expenses above normal operating costs during this time, such as the cost of rebuilding.

Discuss business interruption coverage carefully with your agent because policies vary widely. Some cover business interruption by fire, floods, earthquake or civil unrest; others cover only some of these events or require the purchase of an additional endorsement or separate policy.

This article was originally published in the February 1996 print edition of Entrepreneur with the headline: Cover Charge.