09/ 16/ 2005
by Karen Greenwood, NFIB Legal Foundation
The word “insurance” often makes business owners cringe and, for good reason, insurance can be confusing and expensive. When starting a business it is difficult to know what type and how much insurance you need. The financial status and size of a business often dictates what type and amount of insurance a business needs. But different businesses have different insurance needs. The following list and tips will help you navigate through the insurance maze.
Basic Insurance:
- Comprehensive General Liability: Often includes coverage for fires, personal injuries on your property and legal fees, in case you get sued.
- Property and Equipment: Covers damages to your property and equipment in your office.
Extended Basic Coverage:
- Automobile: If your business is going to own or use a vehicle, this is a must.
- Business Interruption: Covers lost income due to interruption in business operations caused by various events including fires, floods or other disasters.
- Employment Practices Liability Insurance: Protects you against lawsuits by employees for sexual harassment, wrongful termination or employment discrimination.
- Home Business: Home insurance does not cover home business operations, so if you run your business out of your home, you can buy a policy that will cover your business’ property and liabilities.
- Umbrella Coverage: If you exceed your policy limits on your other insurance plans, or your general plan does not cover a certain situation, umbrella protection covers additional liabilities.
Employee Benefits:
Health: As the costs of health care continue to rise, so does the risk of not having health insurance. Moreover, health insurance is often a key benefit when it comes to attracting and retaining the best employees. Before your start shopping for health insurance, make sure you have a good understanding of your employees’ health needs and be sure to consider tax-favored health savings accounts. HSAs are tax-free accounts that are designed to help individuals and small businesses save for qualified health expenses.
Workers’ Compensation: Covers employees’ medical and rehabilitation expenses, as well as their lost wages resulting from an on-the-job injury. Most states require this of all employers, but to maintain workers’ compensation insurance, check your local state law to determine the exact coverage you need.
Disability: Short-term: Pays an employee a portion of their salary if they are unable to work due to injury or illness. Most policies cover employees from 50 to 90 days. Long-term: Pays an employee a portion of their salary if they sustain an injury or illness that prevents them from performing their job. Life: Provides death benefit protection to your dependents should something catastrophic happen to you.
Industry Coverage:
- Bailees: Covers damages to customer’s property while on your business’ premises.
- Computer Insurance: Covers losses to computer systems or network equipment.
- Crime Insurance: Protects you against theft, vandalism and other crimes as well as illegal activity by employees.
- Fidelity Bonding: Covers employees responsible for handling company funds.
- Malpractice: Covers damages due to substandard work (often required in medical and legal fields).
- Error and Omission: Insures against claims that your negligence or failure to act caused an injury or property damage.
- Product Liability: Covers legal expenses that arise from claims alleging injury from products you sell or manufacture.
Important Reminders:
- Read the fine print. All policies are different, so make sure everything you want covered is included in yours.
- Meet annually with your insurance agent. As your business changes, so will your insurance needs.
- Price shop. Insurance rates are competitive, so take time to find the policy that best meets your needs at the lowest price.
It’s common for business owners to over insure in one area and not insure in another area. While you certainly do not need every type of insurance policy, you should meet with an insurance broker to determine which insurance policies will best protect and insure your business.
