Originally Posted on by Marc McNulty, CIC, CRM
If you’re the proud owner of a new business – or even just kicking around the idea of hanging your own shingle – you’ve probably realized that there is a lengthy list of items and issues to address. From startup capital to suppliers to operational space to legal documents… the list probably seems never ending.
Then, of course, you have insurance.
Despite what you may see or hear, insurance is not a one-size-fits-all product. Rather, in technical terms, insurance is a risk financing mechanism that allows you to transfer some of your risk to the insurance company of your choosing. In other words, you are paying a small cost (in the form of a premium payment) to contract with an insurance company to have them keep you whole in the event of a loss (claim).
So, where do you start?
Think of the most valuable assets that are part of your business. It could be raw materials, inventory/stock, or perhaps a building you have purchased. These are all property-related exposures, so you will need property insurance that corresponds with your exposure. If your business relies heavily on property-related exposures to operate, then what would happen if a disaster struck and damaged part or all your property? Easy: you’d get a check from the insurance company to replace it, right?
Not so fast! What about the income loss you would sustain while you had to wait for your property to be rebuilt, repaired, or replaced? This can be covered under an additional property coverage called business income. Ideally, you’d want to get extra expense coverage included as well, as that would pay for many additional expenses you would incur to get your business back up and running as quickly as possible.
Now that your wheels are turning, you’re probably thinking the same thing that most business owners do at some point: what if I get sued for something??? This is where liability coverage comes into play. You will need what is called general liability to cover you for claims/lawsuits stemming from bodily injury and/or property damage from your products, completed operations, and personal & advertising injury arising out of your business. Injury to your employees isn’t covered by this, however – you will need workers’ compensation coverage for that.
If you’re a professional of some sort, you could also get sued for a professional mistake. This is not covered by general liability insurance but is addressed via a professional liability policy or errors and omissions liability policy. Keep in mind that there is a broad range of industries that are professional in nature, so this coverage isn’t exclusively for doctors and lawyers. This coverage applies to consultants, cosmetologists, marketing firms, accountants, staffing firms, and more!
On the other hand, if you’re a contractor, then you probably have plenty of tools and equipment that are valuable to your business. These need to be covered under what is called an inland marine policy or inland marine coverage part of a package policy, since they are used at various job sites as part of your business. Coverage can also be purchased for equipment you may need to rent as part of a job.
Many businesses use autos as part of their operation. Business auto insurance would need to be purchased for any vehicles you have that are titled to your business. In addition, you will want to consider hired and non-owned auto liability for situations where you need to rent a vehicle for business or an employee needs to use their personally-owned vehicle for business reasons.
Finally, what if you have a REALLY big claim stemming from an auto accident, an injured customer, or some other liability claim? This is where a commercial umbrella comes into play. Umbrellas provide an additional layer of liability protection in the event an underlying policy has its limits of insurance exhausted due to a large loss. You can learn more about commercial umbrellas here, as there is often a lot of confusion as to what they are and how they work.
By no means is this an exhaustive list of insurance coverages, but hopefully it gives you a starting point from which you can work. Contact your local independent insurance agent to learn more and to develop a program that is specific to your needs as a business owner!
The information above is of a general nature and your policy and coverages provided may differ from the examples provided. Please read your policy in its entirety to determine your actual coverage available.
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