07/ 06/ 2005
by Steve Strauss
The amount and type of insurance a business needs usually depends upon the stage of growth of the company. For example, in the start-up phase, it is typically financially difficult for the business to get all of the insurance it ideally requires. That is OK. Instead, the plan should be to buy the insurance you really need in the beginning and then phase-in other insurance over time as the business grows.
Startup Phase
Automobile: If you or your employees will be driving in the course of running the business, you must have a commercial automobile policy.
Business Property: Like property insurance for your home, business property insurance covers you for damage or losses to business equipment in the office.
Workers' Compensation: If you are going to have employees, you are likely required by your state to carry workers' compensation insurance, although some states exempt small companies from this requirement (i.e. less than three employees.) Otherwise, you need workers' compensation insurance.
Health: Although not a requirement, it is a necessity. The problem is the cost. There are a few tricks to keeping health-care costs under control. First is the use of COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985.) COBRA allows you to keep your previous employer-sponsored group medical insurance, dental and prescription drug coverage. The other way, of course, is to shop around. Check out savings offered to NFIB members.
Life: You went into business for yourself because, among other reasons, you likely wanted to provide a better life for your family. Life insurance helps keep that dream alive, and it's very affordable; term life insurance is quite inexpensive.
Growth Stage
As your business matures, you can afford, and may likely need, better coverage. Consider at this point:
Liability: Liability insurance can be vital to your company's financial health as it does two important things. First, it covers the business for negligent personal injury damages suffered by customers or visitors to your business, for example, if someone trips and breaks their leg on a banana peel lying in the aisle of your market.
Secondly, if you ever do get sued, liability insurance (also known as "comprehensive general liability" insurance or "CGL" insurance) covers the legal cost of your defense. That alone makes it worthwhile.
Errors and Omissions: Also known as "E and O" insurance, this sort of policy covers you for damages arising out of the negligence, mistakes or failure to take certain actions in the performance of business duties. It is akin to a malpractice policy for professionals.
Business Interruption: This covers you for business income losses due to fire, flood or disaster.
Disability: Disability insurance covers you personally when you cannot work because you are disabled due to injury.
Mature Stage
Once your business hits this stage of development you may want to consider a last few types of insurance:
Key Man: Key-man (or key person) insurance is, essentially, a life insurance policy for your top people. What would it cost you in lost revenue to replace a key employee who dies unexpectedly? That is the gap that key-man insurance fills.
Directors and Officers:Under some circumstances, officers and directors can become personally liable for their business decisions or actions. A D and O policy covers this liability.
Employee Practices Liability:EPLI provides company protection against many kinds of employee lawsuits, such as sexual harassment suits, discrimination suits, wrongful termination actions and breach of employment contract lawsuits.
Your best bet is to meet with an insurance broker to evaluate your business needs. Brokers represent more than one insurance company and so can look for the best deals for you, no matter what stage your business is in.
