Updated: Jan 25
As you start your business, one of the key questions you will need to answer is “What kind of insurance do I need?” In recent years, risk management has become a science in and of itself, bringing with it a proliferation of insurance coverage that can be somewhat mind-boggling to comprehend for the new business owner. This is an area, where the advice of a trusted insurance provider is a must! Below are six primary areas of insurance coverage a business owner needs to consider obtaining.
1. Product Liability
This coverage protects you against claims made by customers injured by the products of your business. If you’re a manufacturer, distributor or retailer of products, this coverage is an absolute necessity. My firsthand experience indicates that, to the extent a product is materially unchanged through the distribution process, the manufacturer will likely bear the brunt of any product liability claim. Depending upon the nature of the product and its intended use, the claims can often be quite significant…and without adequate coverage, ruinous. Often, manufacturers and wholesalers are required by their customer base to carry a certain amount of product liability coverage in order to do business with them.
2. Property and Casualty
This type of policy covers the property of your business against theft or destruction, including that which is caused by sudden, unexpected events. Some level of liability protection for the property covered is also generally included. When most of us think of insurance, this is what we think of: protection for the facility and inventory. Property and casualty insurance are a must! The premiums for coverage vary greatly dependent upon the type of business. A small accounting practice likely requires far less coverage than a manufacturer.
3. Professional Liability
This type of policy covers damages arising from errors and omissions arising from the performance of services by the business. As you can tell, this coverage applies to service businesses, rather than product-driven businesses. (ie: accountants, attorneys, consultants, etc.) Check your trade associations for the most common insurers in your market. Typically, the best deals can be found there. As with property and casualty insurance, professional liability premiums can vary substantially based on the inherent risk of the market you serve.
4. Employee Dishonesty
This type of policy covers financial losses due to employee theft of money, property or securities of the employer. Small businesses can really benefit from these types of policies, because small businesses typically can’t afford the safeguards to protect themselves and aren’t large enough to absorb the losses that can occur. The premiums on these policies are pretty cheap and worth considering if you have employees and the risk exists for a dishonest employee to take you to the cleaners.
5. General Liability
This type of policy covers general liabilities arising in the normal course of business, such as bodily injury or property damage of a third party caused by the insured. The coverage usually takes the form of how much the insurance provider will cover per occurrence (each time) and in aggregate (total for the year). Typically the max general liability coverage is between $1 Million and $2 Million. This is important to consider, especially when considering the need for a liability umbrella policy.
6. Liability Umbrella
This type of policy covers the portion of damages awarded which are beyond the coverage limits of other liability policies. This type of coverage is usually necessary when the risk of a claim exists that could easily bypass the liability coverage of a standard policy, often somewhere between $5 Million and $10 Million. This will take some research to determine just how much protection you really need.
Take the time to ensure you have the appropriate insurance and coverage to mitigate the risks of running your business. Don’t try to tackle it on your own; consult a trusted insurance agent. If you don’t have one, ask someone you know who they use and/or trust. If you have questions or comments on this article, I welcome your feedback. Comment on our Facebook page. If you’d like to schedule a call with us, click on this link.
Just a reminder; the next article in the Where Do I Start? series addresses the question of all new business owners, 6 Steps to Effectively Advertise Your New Business