Small Business: Key Insurance Programs

by Mr. Tracy A. Pounders, Attorney and Counselor at Law

My clients often ask me about what kinds of insurance they should be looking at for their business.  Like insuring your car and your house reduces your risk at home, these five kinds of insurance, listed generally in order of importance, can reduce the financial risks of running your business.

LIABILITY INSURANCE.  If someone is injured at your business or because of something done as part of the business, having liability insurance in place can protect you.  The most common example is if someone slips and falls in your business.  But if you make and sell a product that hurts someone, or if someone suffers financial loss in reliance on your professional advice, liability insurance can also cover these situations.  If your business is one that is open to the public consider a no fault medical payment coverage option.  If someone is hurt on your premises, it’s good business to take care of their medical costs whether or not you are at fault.

AUTOMOBILE INSURANCE.  Your personal automobile insurance, and the automobile insurance of your employees, may not cover business trips or when the vehicle is used in business.  Consequently it is important for you to have insurance to cover the vehicles used in business.

PROPERTY INSURANCE.  You’ve invested a lot into your business property.  General property coverage can cover both the inside and the outside of your business if you own the premises.  But if you don’t own the premises, like most small businesses, you can still insure your tenant improvements.  Tenant’s insurance coverage can be set up to replace the interior of the building and any other improvements you have made to the leased premises.  When looking at property insurance consider both “business interruption” and “important papers” coverages.  “Business interruption” coverage replaces income lost if a covered loss forces you to close your business.  “Important papers” coverage covers the cost of replacing damaged documents and to recreate damaged data (however such coverage is not a substitute for good backups!).

LIFE INSURANCE.  Your business should plan ahead to make sure that it will continue even if you or your business partners die.  The beneficiary of this insurance should be the business.  When looking at this type of insurance consider covering all or that partner’s portion of the company debt and the costs of buying the business out of his or her estate.

“KEY PERSON” INSURANCE.  This insurance pays yours company if a key employee or owner dies or becomes disabled.  Examples of key persons are your business partners and key team members (i.e., a very talented salesperson who generates 50% of your sales).  Listing team members that are not truly “key” to your business will only cost you more money, so you should probably limit the names on your “covered” list.  This type of insurance replaces income lost due to the loss of that key person and continues until the person is replaced.

These are just a general discussion of insurance programs available to you, and is provided for discussion purposes only.  Every business is different. This post is no substitute for a detailed discussion of your business and its risks with both your attorney and your insurance agent.

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