No matter what the size is of your business you will need some level of insurance to protect you and your business. For small businesses, insurers often combine a number of insurance policies into a package sold as a single contract. The most common policy for small businesses is the Business Owners Policy (BOP).
Most small businesses need to purchase at least the following four types of insurance.
Property insurance compensates a business if the property used in the business is lost or damaged due to such things as fire or theft. In addition to the building or structure, property insurance covers personal property such as office furnishings, inventory, raw materials, machinery, computers and other items necessary to a business’s operations. Depending on the policy, property insurance may include coverage for equipment breakdown, removal of debris after a fire or other destructive event, some types of water damage and other losses. It may also provide operating funds when the business is trying to get back on track after a catastrophic loss.
Any business can be sued. Customers may claim the business caused them harm due to a defective part, an error in a service or disregard for another person’s property. If the business is found liable, liability insurance pays damages, up to the policy limits, as well as attorneys’ fees and other legal defense expenses. It also pays the medical bills of anyone injured by or on the premises of the business.
Business Auto Insurance
A business vehicle policy covers cars owned by a business. The insurance pays any costs to third parties for bodily injury or property damage for which the business is legally liable, up to the policy limits.
Workers Compensation Insurance
In all states but Texas an employer must have workers compensation insurance when there are more than a certain number of employees. The minimum number varies from three to five, depending on the state. Workers Comp insurance, as this coverage is usually called, pays for medical care and replaces a portion of lost wages if an employee is injured in the course of employment, regardless of who was at fault for the injury.
If a worker dies because of injuries sustained while working, the insurance provides compensation to the employee’s family. An extremely small business, with one or two people working out of a home, may not need workers compensation insurance. But, it may need more property and liability insurance than what is offered by a typical homeowners policy.
Errors and Omissions Insurance/Professional Liability
Some businesses involve services such as consulting, design functions or representing the needs of others, which can lead to being sued by customers or clients, claiming that the business’s failure to perform a job properly has injured them or caused some sort of harm. Errors and omissions or professional liability insurance covers these situations. The policy pays the judgment for which the insured is legally liable, up to the policy limit. It also provides legal defense costs, even when there has been no wrongdoing.
Employment Practices Liability Insurance
Employment practices liability insurance covers (up to the policy limits) damages for which an employer is legally liable such as violating an employee’s civil or other legal rights. In addition to paying a judgment for which the insured is liable, it also provides legal defense costs, which can be substantial even when there has been no wrongdoing.
Key Employee Insurance
When certain key employees die or become disabled, income insurance can compensate the business. This coverage cushions some of the adverse financial consequences that results from losing a key employee.
As the name implies, an umbrella liability policy provides coverage beyond the business’s other liability insurance policies. It is designed to protect against unusually high losses and provides protection when the policy limits of one of the underlying policies have been used to the limit. For a typical business, the umbrella policy protects beyond the general liability and auto liability policies. Additionally, if a company has employment practices liability insurance or other types of liability insurance, the umbrella could provide protection beyond the limits of these policies.
Do I need liability insurance for my business?
A good liability risk policy can help mitigate the chance that your business will be sued. As careful as we may try to be, mistakes happen that might result in an injury to someone or damages to property. Or, a mistake could harm the reputation or interfere with the privacy of a customer or client. As a result, you may be legally liable to pay damages to someone who suffers a loss due to your actions or inaction.
Depending on the degree of harm and the number of people injured and/or value of property damaged, a lawsuit could bankrupt your business. Even if your organization is cleared of any wrongdoing, a determined plaintiff can keep you tied up in legal proceedings for years, resulting in an expensive and time consuming defense. Liability insurance pays the cost of your defense, protects your assets, and lets you stay focused on your business.
What policy is right for me?
For small businesses the most efficient and least expensive way to purchase liability insurance is usually as part of the Business Owners Policy (BOP) property and liability insurance in one contract.
Under a BOP, your insurance pay damages that you are legally obligated to pay as a result of “bodily injury,” “property damage” or “personal and advertising injury,” up to the policy limits and subject to your deductible. Punitive damages are generally not covered, although there may be some exceptions.
Bodily injury means injury, sickness, disease or death; it may include injuries that are emotional or mental, such as post traumatic stress syndrome or humiliation. Personal and advertising injury includes
What is covered medical expense?
For the most part, your BOP liability coverage is for situations where a third party claims you were negligent and sues for damages. The medical payments coverage is an exception, as it pays medical expenses for bodily injury to third parties that occurs on premises you own or rent or as a result of your operations regardless of fault.
Who is insured?
BOP liability coverage insures a sole proprietor, partners or partners named in the policy “Declarations,” but only with respect to their duties on behalf of the business. The spouses of sole proprietors or partners are also covered. If your organization has officers and directors, they are insured, as are your stockholders, but only with respect to their duties or liabilities in connection with the business. Employees and volunteer workers are insured for acts committed within the scope of their employment in your business.
How much liability coverage is right for my business?
The amount of liability coverage a business needs depends on the perceived risk. For example, a business that manufactures or distributes engines and generators is at a greater risk of being sued than one that distributes fabric and would therefore need more liability insurance. You can usually get a good sense of lawsuits involving your type of business through your trade association.
Some of the companies with which you do business may require you to carry a specific minimum amount of liability insurance. Make sure to keep an eye on contracts with your suppliers and customers in case they have specific requirements for liability coverage.
What is difference between occurrence and claims made policies?
There are two major forms of liability insurance policies: Occurrence and Claims Made.
Occurrence Policy: An occurrence policy covers a business for harm to others caused by incidents that occurred while a policy is in force, no matter when the claim is filed. For example, a person might sue a business in 2010 for an injury stemming from an injury in 2001. The policy that was in place when the incident occurred (i.e.2001) will apply, even if the company now has a policy in place with higher limits.
Claims Made Policy: A claims made policy covers the business based on the policy that is in force when the claim is made, regardless of when the incident occurred. In the above example, the limits in the policy in effect in 2010 would apply.
Umbrella liability insurance is an extra insurance policy that covers some expenses not covered by other liability insurance policies.
Standard business liability coverage will protect you in many situations, but when serious situations arise, umbrella liability insurance can help ensure that your business is protected. Accidents are unexpected and often unavoidable. Here are a few of the many situations that may happen:
Cover your business with umbrella liability insurance
A business umbrella policy picks up where your business auto liability, general liability or other liability coverage exceeds its limits. Umbrella insurance is a cost-effective way to provide extra coverage against bodily injury and/or property damage.
For example, if your current policy protects your business for up to $2 million and you are successfully sued for $3 million, your business umbrella coverage can pay the outstanding $1 million. Otherwise, the difference would very likely come out of your business profits or your pocket.
It’s there when you need it
The umbrella policy only comes into play when your basic insurance policies have met maximum payouts. That means that you may go for years without having to use the umbrella policy. But, it’s there in case you need it, helping to mitigate risk.
Taking the initiative to carry an umbrella insurance policy is a smart way to provide extra protection for yourself and your business.
Footnote: This is a brief overview of Commercial Umbrella Insurance. You should read a policy thoroughly before purchasing any insurance policy.
Errors and Omissions (E&O) is insurance to protect you and your company if a client claims they suffered a financial loss because of an error or an omission committed by you in the delivery of your professional services. This could result in a lawsuit.
What is E&O?
E&O is a limited insurance category designed to protect you against professional error. Professional error is a risk in any business environment. For example:
The number of possible professional errors run a wide range and many may not be serious. However, some will certainly cause a customer to sue you.
The benefit of E&O is that it protects you across a range of legitimate professional errors and against frivolous lawsuits by paying for legal costs.
Who Needs E&O?
While errors and omissions insurance has been part of the insurance portfolio of doctors, lawyers, financial services professionals and realtors, many businesses face professional liability risk. To help determine whether you need E&O, ask yourself , “Can I afford a lawsuit due to a professional error on my part?” For the majority of small businesses, the answer is probably no. It doesn’t matter if you win or lose the lawsuit, because there’s the question of paying the lawyers.
Often businesses will require their vendors and subcontractors to hold E&O insurance. Even if it isn’t required, showing prospective customers that you are protected may give them the peace of mind they need to hire you. If you consider the alternative, you’ll see that the annual premium, which varies based on the number of your insured employees and nature of your business, could be a cost-effective way to obtain needed protection.
Footnote: This is a brief overview of Errors & Omissions Insurance. You should read a policy thoroughly before purchasing any insurance policy.
How quickly your business can return to full operations after a major disaster such as a tornado, a fire, or a flood often depends on emergency planning you do today!
When you also consider that the number of declared major disasters more than doubled compared to the previous decade, preparedness becomes an even more critical issue. Although each situation is unique, any organization can be better prepared if it
America’s businesses form the backbone of the nation’s economy; small businesses alone account for more than 99% of all companies with employees, employ 50% of all private sector workers and provide nearly 45% of the nation’s payroll1. Planning today will help support employees, customers, the community, the local economy and even the country. It also protects your business investment and gives your company a better chance for survival.
Ready Business outlines commonsense measures business owners and managers can take to start getting ready. The site is an excellent resource with easy-to-use templates to help you plan for your company’s future. These recommendations reflect the Emergency Preparedness and Business Continuity Standard (NFPA 1600) developed by the National Fire Protection Association and endorsed by the American National Standards Institute and the Department of Homeland Security.
Business continuity and crisis management can be complex depending on the particular industry, size and scope of your business. However, putting a disaster protection and continuity plan in motion helps improves the likelihood that your company will survive and recover.
The following information is a good start for small- to mid-sized businesses. The following helps give you an idea of what it may cost to develop a disaster protection and business continuity plan. Some of what is recommended can be done at little or no cost. Use this list to get started and then consider what else you can do to help protect your people and prepare your business.
More than $500
1. Source: U.S. Census Bureau, SUSB, CPS; International Trade Administration; Bureau of Labor Statistics, BED; Advocacy-funded research, Small Business GDP: Update 2002-2010, www.sba.gov/advocacy/7540/42371
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