Entrepreneurial types tend to be relentless in the pursuit of their dreams. Many bring a single-minded focus to getting their business up and running. They spend every waking moment (and even some of their sleep time) thinking up new ways to innovate, improve, and outfox. This type of person is often so preoccupied that he or she skips meals unintentionally.
It’s little wonder, then, that many entrepreneurs and small business owners don’t pause long enough in their frenzied development efforts to consider the various ways in which they should take out insurance policies on their physical facilities, intellectual property, and sometimes even their very lives. Developing a new piece of lifesaving medical technology or scaling up a Mom-and-Pop restaurant into a franchise is fun and exciting. Taking out insurance policies is decidedly less sexy.
Regardless, the responsible move for every business owner and visionary is to pause long enough to do the right thing by themselves and the people they work with. In many instances, business insurance is required by law, but most forms are required by common sense. The past few years, if nothing else, have amply demonstrated the inescapable fact that “business as usual” can be wiped out by health scares, the introduction of new regulations, and civil unrest. Business insurance doesn’t cost…it pays.
Your first step is to acknowledge the need and set aside time and a portion of your budget to make it happen. But how much insurance does your business really need? What do most business owners say is the best business insurance? To help answer those questions, it may help to outline the most common types of policies.
General Liability Insurance
We’ve all heard stories about how a business was sued after, for example, a passerby slipped on the sidewalk and suffered serious injuries. In our increasingly litigious society, there are people looking for reasons to sue successful businesses as some sort of easy payday. You owe it to yourself to protect yourself and your employees.
A general liability policy will cover your business against claims that involve physical injuries and property damage that can in any way be attributed to your products or services. Whether a legal claim against your business is frivolous or not is entirely beside the point. You simply cannot count on your good intentions alone.
Commercial Property Insurance
The loss of property in a fire or as a result of theft and vandalism is a category of business insurance you need to be thinking about. If your business is located in a northern temperate zone, you probably know someone who suffered distressing property damage when a water pipe froze or burst.
Commercial property insurance policies can protect your assets in all of these circumstances and more. When disaster strikes, it typically does not announce itself weeks in advance. Making sure you are covered in this category can help you stay in business, relocating if need be, in the event of the unforeseen.
Home-Based Business Insurance
When offices began shutting down in March of 2020, many workers transitioned to their home offices. Caught unprepared, many had to repurpose various portions of their homes to accommodate office work. Over time, supporting equipment — printers, computers, displays, etc. — came into the home piece by piece. As pandemic-related restrictions began to lift, many workers decided to stay put and keep working out of their homes. Some started home-based businesses.
What many home-based workers did not do, given all the frenetic activity, was take the time to give their insurance agent a call. If you took company-owned equipment home during the pandemic, will insurance come to the rescue should someone break in and steal it? Will your employer stand behind you if data is stolen or lost at home? Questions such as these need to have clear, unambiguous answers. If you’re not sure, talk to your agent about home-based business insurance as soon as possible.
Product Liability Insurance
If your business sells a customer a product that is subsequently found to be toxic or cause serious injuries, are you liable? The best legal minds are likely to say “Maybe.” By now, we are all familiar with the story of the lawsuit (and multimillion-dollar award) which led McDonald’s to begin helpfully informing its customers that the coffee they were about to enjoy was “hot.”
People can sue your business for any reason. Once a claim is lodged, anyone within 100 miles of the incident might find their name on a summons. Your products might be the safest, the most reliable, and the best value on planet Earth, but someone will figure out a way to hurt themselves with it. Make sure your business is fully covered against such claims, whether they have merit or not.
Professional Liability Insurance
Similarly, lawsuits can be initiated against businesses that provide professional services. The range of services is quite wide. The company that collects and launders uniforms looks a lot different from the wood-paneled conference room of a financial advisor, but both companies are providing a service that can yield unexpected or unpleasant results. The uniforms get lost in transit. The stock market tanks. Unhappy customers call their attorneys.
Again, your good intentions coupled with a willingness to set things right are not enough. As good and admirable as those values are, your business still needs to take out sufficient coverage in the event that a customer proves to be especially stubborn and unwilling to forgive or compromise. Get your agent to help you assess areas of exposure you may not be seeing.
Business Income Insurance
Business income insurance is similar in structure to a commercial property policy. The primary difference is that a BIC policy views your monthly income as a tangible asset that can be lost through any number of means. As a recent example, many businesses suffered a serious slowdown or total work stoppage once the pandemic of 2020 took hold. Companies that had BIC coverage may not have fully weathered the storm, but they did far better than those who never thought they would need this type of insurance.
When asking about this type of coverage, be sure to get written details on the duration of coverage. Keep the rallying cry of “Two weeks to flatten the curve!” top of mind as you work with your agent to determine how much coverage you will need and (perhaps most importantly) what period of time will be covered under the policy.
6 Practical Steps When Acquiring Business Insurance
Now let’s talk about how you go about deciding what’s right for you.
1. Seek advice from a qualified professional.
It’s entirely possible that you are that rare mix of go-getter entrepreneur and actuarial table master, but most people are not. A seasoned business owner knows when to rely on the expertise of others. Given the downside to encountering circumstances for which you are not covered, it only makes sense to seek out input from insurance experts. You can Google information to begin to educate yourself as to risks, exposure, and appropriate levels of coverage, but business insurance is too important to not schedule at least one face-to-face meeting with your agent.
2. Get at least two opinions as to your risk level.
Let’s assume your agent is a top-notch performer who really knows their stuff. That’s great, but you should still seek out at least one other opinion when it comes to the topic of risk assessment. Think of business insurance as if you were gathering information and picking a doctor prior to open-heart surgery. Lawsuits, natural disasters, pandemics, and the like are capable of performing unwanted “surgery” on your business at a moment’s notice. Make sure you are selecting coverage based on empirical data that will hold up during a claim.
3. Be clear on your geographic service area.
If someone calls your business from a neighboring state and acts on the advice they receive from one of your employees, are you liable should that advice yield damaging results? Both you and your staff need to be 100% clear on the geographic area you serve, whether it’s “friendly neighborhood” level or worldwide. If your company is not insured to conduct its business in an adjacent county, don’t give in to any quick-sale temptations, either.
4. Know your local employment insurance laws.
The downside to not knowing what you don’t know can be huge. Lawsuits from current or former employees can be crippling in terms of time and money even when you win! We all know that ignorance of the law is not a workable defense, so be sure that you and/or your agent are well-versed on requirements before you make your first hire. Regulations change, of course, so make sure someone stays current here.
5. Budget for premium costs.
Most business owners like to spend money on upgrades to their facilities, handing out bonuses, or any number of other things they can see with their eyes. Paying insurance premiums, to many, feels like money down the drain simply because they see no tangible benefit. For those who begrudge this line item in their budgets, it might actually be helpful to post photos of destroyed businesses next to the desk or computer screen where you pay bills. You are buying something, and that something is peace of mind in the face of disaster.
6. Review, review, and review.
Many (perhaps most) business owners and entrepreneurs sign off on their policies, pay the premiums, and shove the paperwork in a dark corner of their facilities. Taking a “one and done” attitude toward business insurance, though, is a serious mistake. We all know that circumstances change rapidly, company value goes up and down, and the only constant is change. Carve out time to regularly review your coverage and make adjustments as needed.
