Insurance Needs of Small Business Owners
The dreams of small business owners and the business plans that outline the strategy to fulfill those dreams rarely include the insurance protections that business owners will need. Yet, having adequate protection can help your business succeed, while protecting you and your family from financial risk.
Consider these key insurance protections:
Business Owner Policy (BOP)
This is a typical package of coverage that addresses the basic and most important needs of the small business owner. This package includes:
- Liability coverage, which provides defense and damages protection if you, your employees or products and services cause bodily harm to a third party;
- Property insurance, which will cover buildings or other business property such as equipment, computers and inventory from losses due to fire, vandalism, theft, smoke damage, etc.;
- Business interruption insurance, which can provide income when events prevent you from conducting business
- Vehicle coverage for vehicles the business may own or for when employees use personal automobiles for business purposes
- Worker’s Compensation: This insurance covers employees who are injured on the job with wage replacement and medical benefits. In exchange for these benefits, employees forfeit the right to sue. All states require this coverage and levy stiff penalties for noncompliance.
Other insurance coverage that may be applicable to a smaller subset of business owners include:
Professional Liability Insurance
Also known as errors and omissions insurance, this provides you with defense and damages in the event that you fail to provide, or improperly render, professional services. (Your general liability policy will not cover this risk.) Typically, this coverage is for professional firms, e.g., lawyers, accountants, consultants, and real estate agents
With unending stories of business data being compromised by hackers, if your business has sensitive or non-public information (on computers or in paper files), your business can be held responsible if this information is stolen.
If you are in business with one or more partners, your business may want to consider a buy-sell agreement that provides, in the event of the death of one of the partners, the remaining partners buy out the deceased partner’s share from the surviving spouse. This avoids having a surviving spouse as a partner, which can cause complications for the business and the remaining partners. Life insurance on the lives of each partner can provide the necessary funds to complete the agreed-upon purchase.
Key Person Insurance
If you have a valuable employee (e.g., a superstar salesman) whose loss would take considerable time for the business to recover from, the proceeds of a life insurance policy on a key employee would act as a financial bridge until you can bring on an equally effective replacement.
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2020-104133 Exp. 7/22