Unfortunately, the question of whether a business has enough insurance doesn't occur to some proprietors until the unanticipated occurs and it's discovered that the coverage depended on to set things right isn't enough. Insurance coverage usually doesn't rate a high priority when compared to all that can consume the time and attention of a small business owner. But with insufficient insurance or the wrong kinds of coverage, a business stands at the mercy of fire, natural disaster, robbery or burglary, and one of today's steadily increasing risks -- lawsuits. There are many ways a business can be crippled or wiped out if it's not fully covered.
A periodic review of insurance coverage is recommended for every existing business For any new business, initial planning should include determination of all likely insurance needs. As to what insurance is needed, first consider the basics.
- general liability;
- flood, tornado, and other natural disaster (perhaps depending on geographic location);
- business interruption coverage;
- vehicle insurance (as needed).
Another necessity,workers' compensation coverage, is a legal requirement (except in some states for businesses with just one or two employees). Workers' compensation premiums are based on a percentage of payroll cost by work category; that is, the greater the risk associated with a particular kind of work, the greater the percentage charged.
Secondary, and sometimes optional, insurance includes:
- coverage for robbery, often fairly expensive but necessary to a business that handles significant amounts of cash and valuables;
- burglary coverage, which also may be expensive depending on the area and the cost of security requirements;
- fidelity bonding, for employees responsible for handling company funds;
- life insurance or key-person insurance, especially important in partnerships and corporations.
Most small companies can benefit from the services of an insurance advisor to help build the needed coverage around the particular kind of business. This advisor should be someone who specializes in businesses insurance and can help you keep up to date as the business grows and the environment changes.
- Homeowner's insurance isn't likely to cover work-related accidents; separate or additional coverage is required.
- If the family automobile is used for business, separate insurance is needed.
- It's usually possible to add an endorsement to a homeowner's policy to cover business equipment up to about $10,000, but this includes no liability coverage.
- It's sometimes possible to obtain an endorsement to a homeowner's policy for liability, but only if the business has very few visitors.
- Special in-home business policies including most essential features are available, but these invariably limit the number of employees in the home to a maximum of two or three. The most comprehensive business-owner policies available are for businesses operated in locations other than the home.
Where to begin in determining how much of what kinds of insurance coverage are needed? The insurance advisor suggested earlier is a good place to start, as is the Small Business Administration. It's all too easy for one who isn't thoroughly knowledgeable of insurance needs to become over-insured in some areas and under-insured in others and not be aware of such shortcomings until it's time to submit a claim.
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