There are three types of small business
insurance you need, including one that is mandatory. While
business property and liability insurance is necessary, you're
not legally obligated to have them, whereas employers must
provide state-mandated coverages for injuries and illnesses that
are job-related through workers compensation insurance.
With that said, however, under no
circumstances should a business be uninsured for its property,
equipment, and inventory, as well as against its potential
liabilities, in this litigious society.
Small
Business Property Insurance
Property insurance can be purchased on
the basis of the property's actual value (the replacement cost
minus depreciation), its replacement value (the cost of
replacing an item without deducting for depreciation), or on an
agreed-upon amount (commonly used for art objects and other
unique items).
Basic property insurance will generally
cover your losses in the event of a fire or a lightning strike,
and will pay the cost of removing property to protect it from
further loss. Additionally, a standard small business policy
will usually cover losses from windstorm, hail, explosion, riot
and civil commotion, and damage caused by aircraft, automobiles,
or vandalism. Optional coverage can insure against earthquakes,
floods, building collapse, and glass breakage. Property
insurance can be categorized by what is insured and by the
events leading to a loss.
The Independent Insurance Agents of
America offers a checklist:
-
Buildings
and other structures, leased or owned
-
Furniture,
equipment, and supplies
-
Leased
equipment
-
Inventory
-
Money and
securities
-
Records of
accounts receivable
-
Improvements and betterments you made to the premises
-
Machinery
-
Boilers
-
Data
processing equipment and media, including computers
-
Valuable
papers, books, and documents
-
Mobile
property, such as automobiles, trucks, and construction
equipment
-
Satellite
dishes
-
Signs,
fences, and other outdoor property not attached to a building
-
Intangible
property (goodwill, trademarks, etc.)
Taking
stock of your business property
You should take a complete inventory of
all your business property, determine its value, and decide
what's worth insuring. Make sure the items you do want to cover
are provided for in the basic policy; if not, buy more coverage.
For example, you'll want to make sure
your building is covered, as well as your inventory, furniture,
equipment, and supplies. Even if your business rents space, your
lease might require certain types of insurance coverage that you
must carry. However, just because the building owner carries all
the necessary insurance on the building in which you operate,
doesn't mean it will cover any of your equipment,
furniture, and other business possessions.
Named-peril policies will cover certain
losses resulting only from those perils that the policy names;
all-risk policies offer coverage for all perils except those
specifically named in the policy. An all-risk policy is usually
sufficient for the average small business, but keep in mind that
all businesses, and thus their insurance needs, are different.
Liability
Insurance
Liability insurance will protect your
business assets in the event you are sued. These days, with
lawsuits clogging the courts, you'll want to maintain a proper
amount of liability insurance to protect the business you've
worked so hard to build. Your company can be sued for something
it did — or even didn't do — that resulted in injury or
property damage to someone else.
Liability insurance will not only pay
the cost of the damages but also the legal fees and other costs
associated with your defense in a lawsuit. The expenses of
defending yourself against such claims in court can be
substantial, regardless of whether or not the lawsuit has
merit.
However, liability insurance will not protect you against
claims arising from nonperformance of a contract, wrongful
termination of employees, sexual harassment, or race and gender
lawsuits. Usually a surety bond is taken out as performance
insurance. Employment practices liability insurance (EPLI)
protects your business against employment-related claims, such
as sexual harassment.
Many small businesses have difficulty
figuring out how much liability insurance they need. There are some
guidelines to consider, but no standard formula. Determining the
amount of liability insurance to buy is an important task, since
the sky's the limit on lawsuits. You could use a recent
liability settlement in an industry related to yours as a guide,
or you could base the amount on your business' total assets.
Either way, discuss it with your agent and check for
recommendations from your trade association.
Some occupational licenses might require
a set amount of liability insurance. If you rent your business
property, check your lease, as it could require a set amount of
liability. Then buy what you can reasonably afford, because the
cost of the insurance will be far less than the cost of a
lawsuit.
Business
Owners Policies
Many insurance companies have bundled
property and liability coverage into what's commonly called a
business owners policy (BOP). It allows you to obtain broad
coverage with affordable premiums.
Even if you have a BOP, you'll want to
consider adding coverages that might not otherwise be included.
Property insurance can be tailored to fit your needs since no
two businesses are the same. For example, a restaurant has
different needs than a furniture store; a retail business with a
lot of customer interaction and builders who are contractually
obligated to, say erect an office building, may face a greater
amount of liability than, say, a two-person accounting office.
Therefore, liability above and beyond a BOP package should be
considered.
Source:
Insure.com
