Maybe the only thing worse than paying for insurance that you never use is not having insurance when it is needed. Insurance is one of those aggravating and pricy business items that is responsible and important too.
Buying insurance requires a cost-benefit analysis because you probably cannot afford all the insurance you would like to get. So, which insurance is vital, which is nice to have, and which can you (almost) safely pass on?
Starting with the basics, there are two types of insurance that all business need, no matter what: property insurance and liability insurance.
1. Property Insurance
Property insurance is essential. Property insurance protects your business assets from damage – things
like the building, equipment, computers, and so on. Even if you run an online business and don’t have an actual brick-and-mortar store, you still have vital business equipment or inventory that surely needs protection.
And this dovetails with an important note for home-based business owners: your homeowner’s insurance will likely not cover any damaged business equipment – don’t make the mistake of thinking you are already protected!
2. Liability Insurance
Liability insurance is the other essential insurance every small business needs. Ultimately, liability insurance helps to prevent you from getting sued. Again, very necessary.
General Liability Insurance: Comprehensive General Liability insurance (often also called CGL insurance) protects your business from any potential liability due to negligence that could cause injury to others. For example, say that one of your employees at your carpet store, driving a fork lift, knocks a roll of carpet onto a customer, injuring her. That is where your CGL policy would come into play (and no, I swear, I didn’t hurt anyone when I did this when I was 16 and working at my dad’s store!)
General liability insurance protects your company from being sued by someone who was injured after having used your company’s products or services.
Professional liability insurance: Professional liability insurance isn’t necessary for all businesses. However, if you are a doctor, lawyer, realtor, architect, or computer consultant, professional liability insurance is something you should seriously consider investing in, and of course, may be something required by your administrating organization.
Like CGL, professional liability insurance protects you should negligence injure a client, only in this case, it would be your professional negligence, in which case, you will have a lot more to worry about.
3. Employee Insurance
Workers’ compensation insurance: This insurance is legally required if you have employees. It provides benefits to employees who have been injured on the job in exchange for their right to sue. This is demonstrably less expensive than a lawsuit.
Health insurance: Even if you don’t have a medium-sized company, providing your employees with health benefits is one of the best ways to keep them happy and loyal. Medical, disability, and dental benefits are all great ways to ensure a healthy workplace. Also, know that under the Affordable Care Act, employers with more than 50 employees are required to provide them with health insurance.
4. Miscellaneous Insurance
There are plenty of other types of insurance you can buy for your business. They are not all entirely necessary, but they can certainly prove beneficial.
Business Interruption Insurance: This insurance protects your business from profits lost when you’re forced to close shop for unforeseeable reasons, such as a snow storm, fires, vandalism, etc.
Disability Insurance: Disability insurance covers you personally in the event you become disabled or unable to work. Again, not a necessity, but certainly could come in handy.
Key Person Insurance: This insurance is useful if your business is dependent upon a particular person’s expertise. If this “key person” dies or becomes disabled, key person insurance will compensate your business for this financial loss.
Data Breach: With everyone being hacked these days, this might be deemed a requirement at this point.
Bottom line here, folks: Better safe than sorry.
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About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business Success.© Steven D. Strauss.
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