Insurance is one of the most important needs for a small business, yet it’s one that many owners skimp on. Whether it’s business interruption insurance or casualty and property coverage, owners tend to forgo it or not get enough, even though that can put their companies and their livelihoods at risk.
Another problem is that business owners don’t re-evaluate their insurance needs as their companies grow — it’s easier to just pay the premium and get that item off their to-do list.
Claire Wilkinson, a vice president at the Insurance Information Institute, a New York-based trade group, said one of the biggest lapses is in the area of business interruption insurance. This kind of coverage, which you might need to buy separately from a standard business insurance package, can be critical after a natural disaster, fire or power failure that shuts your business down. Business interruption insurance covers lost profits and operating expenses, such as salaries, that must still be paid even when a company can’t operate.
“Many people don’t think of the loss of income they would suffer if there was a fire on their premises that would disrupt their business operation,” Wilkinson said. She noted that among other things, business interruption insurance can cover the expense of operating out of a temporary location.
Another common, and serious insurance mistake is made by owners of home-based businesses, who believe that their homeowners’ policies will cover accidents that happen in the course of business. Not true — if a delivery person falls and is injured on your property while dropping off a package for your business, you’re not protected unless you purchase a separate commercial liability policy. Home-business operators can, however, get endorsements on their homeowners’ policies that will cover some equipment, such as computers.
If you use your family car for business purposes, you can face the same situation with your consumer auto insurance policy.
If you want to learn more about business insurance, there are some good primers online. The insurance institute’s Web site has a section on business insurance information at www.iii.org/individuals/business. The site includes a checklist of the kinds of insurance a business needs to consider. And the Small Business Administration Web site has a detailed explanation on business insurance at www.sba.gov/library/pubs/mp-28.doc.
Books on starting up a business can also give you an overview of what you’re likely to need.
At its most basic, you need property insurance, to cover losses to your premises and equipment, and you’ll need liability insurance to cover personal injuries. Depending on what kind of building your business is located in, or what kind of business you have, you might need extra coverage for certain fixtures or for your specialized equipment. And, if it’s at all likely your business could be damaged in a natural disaster, you’ll need to buy separate flood or earthquake insurance.
But, depending on the industry or profession you’re in, you might need special coverage for your business activities.
For example, if you’re about to get into the export business, you should consider getting export credit insurance to protect your company in case a foreign customer doesn’t pay. Or, if you’re in the food business, you’ll need coverage for spoilage in the event of a power outage.
If you’re manufacturing something, you’ll likely need product liability insurance. And if you’re in a profession, your state may require you to carry a minimum level of malpractice insurance.
Some companies decide to buy policies for possible employee-related issues, such as coverage for sexual harassment charges.
If you’re not sure of what kind of specific policies you should be getting, it’s a good idea to contact a trade association, or other business owners in your industry or profession. They can not only inform you, but can also direct you to a good broker.
Getting a good insurance broker is critical for a small business. That means someone who understands your type of business and what your needs are. It also means someone who’ll be a step ahead of you, asking you periodically about changes in your company that might affect your coverage, and then upgrading your policy for you — a big help for that owner who just wants to pay the premium and move on.
Equally important, a good broker will also stop you from making mistakes, such as underinsuring yourself to save money.