Like a person, a business has assets that must be protected from mayhem. Accidents, events such as fire or flood and even the activities of the owners can have devastating effects on the viability of a business without coverage. Every business needs to be insured to protect the company from the unpredictable nature of life, and there are some types of insurance that are indispensable to virtually any business owner, including startups. Things won’t always go perfectly at your business, but these 5 types of insurance coverage will help ensure that they don’t go wrong and stay there.
Every business needs liability insurance. A liability insurance policy provides you with both legal and financial assistance if you, one of your employees or one of your products is alleged to have caused bodily harm or property damage. Something as simple as a wet floor and a clumsy visitor could cause tremendous legal difficulties for your startup, and a general liability policy helps protects your business from legal action from employees, customers, and the general public.
Rates depend on the activity at your startup, and if there are activities, such as drinking or athletic competition, that take place at your business, your rates will be much higher. Premiums for a general liability policy can be expensive, but the costs of settling a legal matter out of packet can far exceed any premiums paid.
Another type of liability insurance is called professional liability insurance, also known as Errors and Omissions insurance. It covers damages and legal defense stemming from improper rendering of professional services. If you own a law firm and one of your attorneys gives legal advice that gets a client sent to jail, or you own a hair salon and one of your stylists butchers a young starlet who loses out on a role as a result, professional liability insurance will provide the protection your business needs.
The property of your business also requires protection. If you own your facilities or have valuable equipment that your business would be unable to function without, then a property insurance policy is a worthwhile investment. An HBF property insurance policy can protect your business from losses related to fire, theft, smoke damage and vandalism. Many business owners combine property insurance with business interruption insurance, which provides for the lost income stemming from the unavailable equipment. For example, an owner of an ice cream shop will want both so in case his freezers malfunction, the policy will cover part replacement and the removal of the ice cream soup, the lost revenue during the cleanup…everything but the tears of sad, treatless children.
Worker’s Compensation is more than just a good idea. In many jurisdictions, it’s the law. This type of insurance provides an employee with medical benefits and wage replacement if an injury occurs in the workplace. In exchange, the employee foregoes any legal action against the business. Any business with employees who earn a standard taxable wage must have a policy. Penalties for noncompliance vary by municipality, but are generally severe, up to and including being sued out of business by an employee who could have used a bit more training time.
Directors and Officers Insurance
This type of insurance protects the business from…you. It is intended to shield the company from actions by its top officials that could jeopardize its profitability or operations. If you or another higher-up at the company gets frustrated with an irate client and expresses his dedication to customer service in the form of a left hook during business hours, this kind of insurance can help defray the cost of legal advice and damages.
While a successful company is built to last forever (or until it’s acquired), the people who run it are not. Life insurance is more commonly used to protect a person’s family from economic hardship resulting from their death, but it can also be used to protect business partners and the company itself from your mortality. It works the same way as does a standard life insurance policy: you pay a periodic premium in exchange for a death benefit paid to a beneficiary. In the context of business, a life insurance policy is often used as part of a buy/sell agreement.
In this type of arrangement, business partners own policies on each other’s lives worth enough to purchase the remaining stake in a business if one of them should die, ensuring the continuity of the business. The payout can also cover any debts you may have to keep them from impacting your family or business.
Life insurance can also be used to protect a business from the loss of valuable employees. Every business has certain employees who are so integral to the company’s operations that it would be crippled in their absence, and so many business owners use what is known as key man insurance to guard against their loss. Key man insurance is a policy the business holds that pays a benefit in the event of a core employee’s death, just in case they are unprofessional enough to pass away in the middle of an important project.
Key man insurance is a form of term life insurance, as most policies of this type are only valid for as long as the employee remains with the company. The monetary payout is fixed, as your top employees are only priceless to you, but it can provide funding to offset the costs of hiring and training a new employee, as well as the drop off in performance during the shoe-filling process.
Many things can go wrong at a startup, and so business owners must be prepared to minimize the negative impact with insurance coverage. Some providers even offer what is known as a business owner’s policy or BOP that combines multiple insurance policies into a discounted bundle tailored to the needs of your business. Insurance coverage is as important to your startup as you are, as entrepreneurship is enough of a gamble, even with comprehensive coverage.
Image credit: CC by Juan Beltran