Articles Legal and Insurance

Too many small business owners fail to purchase business insurance or do so without knowing the details of their coverage

Choosing the right insurance to protect your business from potential disaster should rank alongside selecting a location or buying office equipment as among the most critical decisions a business owner has to make. Unfortunately, too many small business owners are so intimidated by the prospect of having to wade through complicated insurance offers, coverage options, and the specter of high premiums that they put insurance decisions off, or simply follow the recommendation of their insurance broker often without understanding the details of the coverage they end up receiving.



Many small business owners, on the advice of their insurance agents, purchase a general business owners plan (BOP), which is a set of combined insurance policies designed to address the needs of similar kinds of businesses that face the same kinds of risks. Generally, BOPs include coverage for property, business interruption, and liability. While these plans offer a general range of coverage and adequately address the needs of many small businesses, it is important to make sure that they address your company's specific situation.

Property insurance will generally cover any buildings or equipment owned by your business. But it is a good idea to review your coverage from time to time to make certain new equipment has been added to the policy. "One of the biggest mistakes small business owners make in regard to their insurance coverage is obtaining a general policy without ever reading through the details of the coverage," says Dave Bowman, chairman of TTG Consultants. "They assume that if they have property insurance, that means the insurance company will pay for any damage no matter what caused it. That's a huge mistake." Make certain that your property insurance will cover any potential natural disasters that might strike. Many policies will not cover flood damage, or only do so under very specific circumstances. Does the area in which your business operates experience earthquakes? Brush fires? Hurricanes? Does the insurance policy cover damage from those specific events? What about damage resulting from accidents or vandalism or other criminal activity?

Business interruption insurance can be a life preserver for any business. Many business owners understand the value of insuring their offices and equipment, but neglect to consider what will happen to the company's finances in the event the offices or equipment become unusable. If your business's location is struck by a disaster, will your insurance provide you with temporary income while you are getting back on your feet? If not, you might end up watching your business founder financially even if your property insurance completely covers the loss of your building or equipment. "Most creditors won't care that your business is shut down for a few days or weeks to recover from a fire, flood, or other accident," Bowman says. "They expect to be paid on time because they have to pay their bills on time." Using a calculation based on your existing records, business interruption insurance will compensate you for the income lost while your business cannot make use of its property. When reviewing your policy, make sure the coverage's time limit is reasonable enough to permit you to relocate and restart operations after the loss of your property.

While BOPs offer a good range of general protection, they do not provide coverage for other specific types of insurance, including health, workers' compensation, disability, automobile, and professional liability, all of which must be covered under other policies.

Extra expense insurance is one final type of business insurance you may wish to consider. Related to business interruption insurance, extra expense insurance pays you a reasonable amount of money in excess of normal operation costs in order to speed your company's recovery.

RESOURCES
Management Help -
A library of helpful articles on evaluating and purchasing business insurance.
www.managementhelp.org/insurnce/insurnce.htm
Insurance Information Institute -
Helpful information on types of business insurance, finding the right agent, and basic coverage issues.
www.iii.org/individuals/business/
Insure.com -
An online tool that helps determine what sort of coverage your firm requires based on size and type of business.
www.info.insure.com/business/smallbiztool.cfm