Do You Have the Right Business Insurance?

Author: Rieva Lesonsky | May 11, 2015

Insurance is one of those things entrepreneurs get when they start their businesses and then forget about as their businesses grow. Many blindly renew their policies without worrying if anything needs to be updated or changed. So set aside some time right now to review your insurance policies.

First, make sure you have disaster coverage. You might think you’re safe, but you’re not. The truth is, according to the Federal Emergency Management Agency (FEMA), 40 percent of businesses stay shuttered following a disaster and another 25 percent fail within the following year. For instance, 30 percent of the small businesses affected by Hurricane Sandy (the second costliest hurricane in U.S. history with final damage costs at $50 billion) ended up closing their doors for good.

Start by assessing your risks. FEMA’s Ready.gov Risk Assessment checklist for businesses includes:

  1. Hazard identification: Assess potential hazards that could affect your business such as fire, hazardous materials, workplace violence or cyberattacks.
  2. Vulnerability assessment: Which of your business assets are at risk? These include people, property, equipment and the environment.
  3. Impact analysis: Calculate the damage you might incur such as casualties, property damage, lawsuits and financial losses.

You can also help protect your business by creating a disaster recovery plan. Visit www.ready.gov/business and PrepareMyBusiness.org for guidance.

But disasters, natural or otherwise, are not the only issues insurance protects you from. Without the proper coverage, your business could be bankrupted by a worker’s compensation claim, lawsuits related to product or service errors or cybercrime. (The National Cybersecurity Institute predicts 2015 will be a big year for copycat cybercrimes.) Luckily, obtaining the proper business insurance can protect your company against all of these risks, and possibly save your business if it came to that.

If your business has grown since you first got insurance (Have your sales increased? Do you carry more products? Did you build an ecommerce site or open a second location? Did you hire more employees?), chances are your coverage is inadequate. Talk to other business owners in your field or your industry trade association to find out which policies they carry or recommend.

In general here are some policies you might want to obtain:

  1. General liability insurance covers legal problems that could arise due to accident, injuries or claims of negligence. These policies protect you in case you’re made to pay for bodily injury, property damage, medical expenses, libel, slander or the cost of defending lawsuits.
  2. Product liability insurance covers businesses that manufacture, wholesale, distribute or sell a product and may be liable for its safety.
  3. Professional liability insurance is also called “errors and omissions” insurance and protects your business against malpractice, errors and negligence that may occur when providing services to your customers.
  4. Commercial property insurance covers everything related to the loss and damage of your business’s property, as well as loss of income due to disasters such as fire, smoke, storms and vandalism.
  5. Home-based business insurance is necessary if you work out of your home because homeowners’ insurance policies do not generally cover home-based business losses.
  6. Cyber liability insurance is important if your business handles any kind of sensitive customer data such as credit card, personal or bank account information. Cyber liability insurance helps pay for your legal defense, court-ordered compensation and more. This policy is a must for businesses in the technology or e-commerce fields.

If you have employees, you are required by law to carry Workers’ Compensation Insurance, pay Unemployment Insurance Tax and, in some states, carry Disability Insurance.

Talk to your insurance agent about whether your current insurance is adequate for your needs. It’s smart to reassess your coverage at least once a year, or whenever your business experiences a big change. Also ask your agent about business interruption insurance, key man insurance and other types of insurance that may help you protect and save your business.

 

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