The Basics of Business Insurance

By Diane Tait

Image courtesy flickr

The sad fact is 2/3 of businesses fail within the first two years of opening their doors.  While some blame economic factors or ever-increasing competition from big business, I believe that the number one failure factor for most business owners is complexity.  That’s right, where owning a small business used to be a straightforward process, todays small business owners have to contend with a myriad of things that entrepreneurs a couple decades ago couldn’t even imagine.  Between the intricacies of the Internet and office automation, who has time to manage the day to day operation of a business?  Even covering the risks associated with business ownership can be as complicated as Sanskrit to the average business owner.  While I can’t help you with feeding your Facebook or dealing with a computer crash, one thing I can give all you small business owners out there is a basic understanding of business insurance.

Do you have employees? – Then you could be required by the state to carry Worker’s Compensation Insurance.  In Florida, the law is such that if you have four or more full or part time employees, you are required to carry Worker’s Comp.  The exception is a construction company or building contractor.  If you operate either of these businesses, you are required to carry Worker’s Comp for every employee, including contractors.  The other exception is for sole proprietors and partners, who are excluded from Worker’s Comp.  In their case, they can still elect to purchase coverage if they so choose.  The reason this type of insurance is good to have is because if any of your employees gets injured on the job, Worker’s Comp covers medical bills and loss of income.  It also pays for legal expenses should the employee sue you due to a job-related injury or illness. It also covers funeral expenses and death benefits to the family of any employee who is killed on the job.  Even if you fall between the cracks by having less than 4 employees, it’s well worth it to speak to your insurance agent about other options.  All it would take is for one uninsured worker to get injured to put you and your business in serious financial jeopardy.

Liability insurance is like a get out of jail free card, should your business be sued.  What most business owners don’t realize is the sheer number of ways a lawsuit can be brought against a company.  If a customer slips and falls inside your business, you can be sued.  If a product is defective, you can be sued for supplying it, even if you aren’t the manufacturer.  If a customer is dissatisfied with a service you provide, they can seek redress in court.  The bottom line is there are many ways to have your business get dragged into court to defend itself.  If you have liability insurance, the costs of defense, legal fees and even judgements rendered against your business will be paid up to the limit of your coverage.  If you have no liability insurance, guess who gets to cover all of the above?  That’s right, you do.  The other issue with business liability insurance is if you carry too little.  This can be almost as bad as carrying none.  The solution is to talk to your insurance agent who knows exactly how to determine the type and amount of liability insurance that’s right for your business.

Image courtesy flickr

Property Insurance is another area that many business owners get wrong.  That’s because they believe only businesses that own the property in which the business resides need property insurance.  This couldn’t be farther from the truth.  The problem is the term property insurance is a misnomer.  It conjures visions of real estate.  However, when it comes to business, property can include everything from inventory and office equipment, to furniture and electronics.  Think about it, what would happen to your business if thieves were to break in over the weekend and strip your shelves clean?  Or, what would be the result if your office were to catch fire or a neighboring business caught fire only to have smoke waft into your unit to ruin everything it touched?  Or, what if a pipe should burst causing a flood your office?  Do you think your business would be able to weather the storm?  Depending on how much damage was done, would you even be able to open your doors next week or next month?  Would your employees be able to hang on while you put your business back in order?  Any one of these could be a business ender if you aren’t insured against these losses. 

Does your business use company cars or work trucks? Then you have fleet auto insurance. Do you use your personal car for business purposes?  Were you aware that many personal auto insurance policies have exclusions that void coverage if your personal vehicle is involved in an accident when your car is used primarily for business?  If this should occur, you could be personally liable for bodily injury and property damage to the other driver and any passengers in their vehicle.  You would also be forced to pay any legal fees and courts costs out of pocket should any of them drag you into court. If you mainly use your personal vehicle for business purposes, it behooves you to talk to your insurance agent about a business auto policy.  Better safe than sorry. 

Image courtesy flickr

Cyber-Insurance is another area of which many business owners are unaware.  In today’s technology-intensive businesses, hacking and ransomware are potent threats.  If your business takes payment via credit card and your company computers are breached resulting in the theft of data, you could be on the hook for not only losses incurred by your customers, but you may be required by the court to hire a forensic specialist to determine how much data was stolen. Plus, your business would also be liable to cover court costs should your disgruntled customers file suit.  I don’t care how much you pay to secure your company computers, if big box stores can get hacked, so can your business.  Even worse, what would happen to your business if you arrived at the office Monday morning only to find that all your office computers had been locked down due to ransomware?  Depending on the severity of the attack, your business could be shut down for days or weeks while the situation is rectified.  If you think the local police or the FBI will come to your rescue, think again.  Due to the international nature of hacking, the chances of the culprits being identified, let alone prosecuted is slim to none.  The solution is to talk not to an FBI agent but to your insurance agent about acquiring cyber-insurance.

One of the keys to having your business make the grade and survive the test of time is to quantify the risks.  The next step is to have in place the correct type and amount of insurance coverage.  If you want your business to beat the odds, the safest bet is to cover your bets.  Talk to your insurance agent today.

Diane Tait owns and operates A&B Insurance.  To find out more about how you can save money on auto insurance, go to her site or fill out the form at right.