Does Your Small Business have the Right Insurance Coverages?
Well, now is the time to start thinking about whether you want to risk all of your hard work going up in flames because you don’t have the proper insurance coverage. You need to consider insurance in two major arenas: coverage of you, the most important cog in your business’ wheel and the business itself.
Coverage of the Business
If you rent your commercial space, your lease may require you to carry general liability coverage to protect the landlord. If not, you need a policy which will cover you for anyone who might slip and fall in your property or outside on the sidewalk. If you operate your business from home, don’t lull yourself into a false sense of security that your homeowners’ policy will cover your business! Many homeowners’ policies specifically exclude any commercially used property and liability claims. You should have a “BOP” or Business Owners’ policy which is the small business version of a homeowners’ policy often with a lot of extras thrown in that will help protect your business, like business interruption insurance which will pay for expenses should your business have to close because of a covered peril (fire, storm, etc.).
You should also consider an “umbrella” liability policy. This expands the coverage that you will receive on a BOP policy as well as perhaps provide additional coverages not included in the BOP policy. Having liability coverage also means that should someone sue you, your insurance company’s attorneys will defend you in the suit and the cost of their defense is included in your coverage.
If you have employees, state law requires that you have a Workers’ Compensation liability policy. Even if you do not have employees, you may be required to carry Workers’ Compensation coverage for any independent contractors you have working. Be careful to check the language of any contracts you are signing, particularly with state and municipal governments as to what your requirements are with respect to Workers’ Compensation.
If you are in the “advice” or “service” business – that is any kind of consultant, software engineer, other professional (architect, lawyer, accountant, dentist, doctor) or marketing firm, you will need to consider whether you are covered for errors and omissions. These policies cover any negligent act or alleged negligence, personal injury (libel or slander), copyright infringement and also provide the defense for such claims. You should consider having coverage for professional liability (or errors & omissions) that at least equals the aggregate value of your personal and business assets. The very last thing you should want is a lawsuit to wipe out all of your hard work to build your business.
Coverage for You, the Business Owner
If you have a partner in your business, you will want to cover each others' lives with both disability and life insurance which equals or exceeds what you will need to hire someone to replace your partner and to run the business in the absence of your partner for the interim period until you are able to replace him/her with the care it will take to find a replacement plus the amount that will enable you to purchase the interest of your deceased partner from his/her heirs.
You will also want to ensure you have adequate health insurance. Of course, now, there is a tax penalty if you do not carry any health insurance, but even without considering the tax, an unexpected medical bill can destroy the financial success that you are starting to enjoy. Consider offering a group medical plan with an HSA (health savings account). This will allow you to control costs by having the high deductible required to qualify for an HSA, but will also protect your assets. HSA contributions are tax advantaged as well as being the account owners money that can carry from year to year (unlike the Healthcare reimbursement accounts which the owner would have to use or lose at the end of a year).
Finally, you will want to consider Long-term Care insurance. A room in a nursing home can cost as much as $90,000 per year or more. A typical stay in a nursing home is 4 years. Care in your final years could easily wipe out the assets you have built. Purchasing Long-term care insurance will protect these assets – you would purchase a dollar level of daily benefit coverage with an elimination period (the period that the insurance doesn’t pay at the beginning of your need for long-term care -- a typical period is 90 days) and a coverage benefit period (a typical period is 5 years). The insurance then pays toward your care bill (which is not covered by any health plan), thus protecting your assets for your heirs.
Protection of your small business assets should not only include your consideration of each of these insurances and the levels of insurance in each policy, but you should also commit to having an annual review of the coverages with your agent.