Small-business owners rely on the success of their businesses to provide the majority of their present and future financial needs. To protect their livelihood, they're wise to seek out certain types of business-insurance coverage, and many insurance companies, including AIG, CNA Financial, and St. Paul Travelers, offer business insurance tailored to their needs. While the liability insurance we discussed in the first part of this article is often the cornerstone of a small-business protection plan, it doesn't cover all of the risks that business owners face. As you might expect, insurance companies offer other products to protect against these additional risks.
Workers' compensation insurance
If your business has employees, you'll almost certainly have to buy workers' compensation insurance. With only a few exceptions, the laws of most states require it. These policies protect you if an employee is injured while on the job, whether or not the injury occurs on your business premises, or if an employee suffers an illness as a result of his or her work. They provide compensation for both medical expenses and lost wages resulting from the injury or illness. If an employee dies on the job, then they may also provide death benefits for the employee's family.
Obtaining workers' compensation insurance varies in difficulty depending on your company's industry. For general office work, standard policies that nearly all business insurance companies offer are usually sufficient to meet your needs. On the other hand, if you're in a hazardous industry with increased potential for injuries and large medical payments, you may need to find a specialized carrier that's familiar with the risks in your industry.
While liability insurance protects your business from the claims of others, it doesn't protect your business property if it's damaged or stolen from the premises. For these instances, you'll want a property-insurance policy, which covers losses that result from fire, flood, storms, theft, vandalism, and most other causes. Like personal policies for homeowners, business property insurance policies usually have a deductible that you must pay.
One area in which it's easy to get confused in this realm is when you use one vehicle for both personal and business purposes. Although personal auto insurance companies usually don't deny claims even if you were using your vehicle for business purposes when an accident occurs, you may want to check with your insurer, especially if you plan to use your vehicle in your business frequently. In some occupations, such as making deliveries, you may have to obtain business insurance for your vehicle or else face having your claim denied after an accident.
Business interruption insurance
In many small businesses, timing is critical. Your contracts may have tight deadlines, and your customers may be depending on your company to do its part in ensuring the success of a larger project. However, especially with so many key operations that rely on technology, a catastrophic event such as a hurricane or earthquake could leave your business without essential services like power for days. Even worse, if your business premises are destroyed, then it may be difficult or impossible to get your business up and running in a timely manner. Either way, your ability to meet crucial deadlines becomes severely compromised.
Business interruption insurance is designed to help compensate you for damages and lost profits resulting from such problems. It also covers overhead and other typical expenses that your business will continue to incur, even if your business isn't able to operate because of a catastrophic event. Business interruption insurance is generally sold within a package of business insurance policies or as an add-on to a property policy.
Key person insurance
Many small businesses depend on the skills and business relationships of one or two crucial people, such as the owner of the business and the person responsible for managing operations and personnel. In many instances, customers may be more loyal to the employee with whom they're doing business than they are to the company itself. Businesses in some industries may suffer through months or years of lower profits before getting back on track after the death or disability of a key person; for other businesses, recovering may even be impossible.
As its name suggests, key person insurance is a life insurance policy that provides death benefits if a key member of your business dies. The proceeds from the policy go to the business and can be used either to liquidate the business or to subsidize operational expenses while the business recovers.
With all of the different types of insurance available to small businesses, you may find it difficult to decide which policies you really need. While complete protection may be a desirable goal, many small businesses lack the financial resources to buy policies that cover every possible contingency. The final part of this article gives you some guidance on how to decide which policies are right for you.
- Starting a Small Business
- Taxes and Your New Business
- Foolish Advice on Business Liability Insurance
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Fool contributor Dan Caplinger has been paging through dozens of pages of insurance documents for a favorite charity. He doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy doesn't need risk management.