The Game of Life
We've all played that board game LIFE, where you had the opportunity to purchase auto, fire, and life insurance. Those who chose to skip on the insurance inevitably had to pay at some point for not being covered. This is true in the game of real life when it comes to insurance; especially business insurance. Most businesses must obtain at least three types of business insurance:
Liability Insurance – Liability insurance will protect you and your company from accidents by customers, your equipment, and assets and often contains a personal umbrella policy to protect the owners of the business from any personal liability.
An umbrella personal protection policy is good to incorporate into your business insurance in case of a lawsuit or bankruptcy of the business. While an umbrella policy may not protect all of your personal assets in the case of a bankruptcy, it will protect your personal assets if a person or entity files a lawsuit against your company. Protecting your personal assets is important when you own a small business. Liability insurance will also protect your business and its assets if there is a fire or other damage to your business from an outside source. Not all liability insurance will cover floods so be sure to ask your insurance agent if you live in an area where flooding occurs.
Workman's Compensation Insurance – If you employ even one person, you need to obtain workman's compensation insurance. The requirements vary from state to state, but each state requires you cover your employees in case of a work related accident.
Some states like Nevada have a workman's compensation state program where every employer must join. Other states like Arizona will allow you to obtain your own workman's compensation policy from your insurance broker. If you're not sure which type you need or is required in your state, ask your insurance broker for more information. It's also important to revisit your workman's compensation insurance each year at renewal time to ensure you're getting the best price.
Auto Insurance – If you list the vehicle you own and drive as a business asset and purchased the vehicle with business funds, you will need to purchase an auto insurance policy where the business is listed as the policy holder and not you as an individual. In the case of an accident, by having business auto insurance, your business would be responsible for any deductible and not you personally.
An insurance broker may tell you that you need other types of business insurance like employee theft insurance, personal liability insurance, and product liability insurance. Piecing together insurance policies isn't always the best route. Find a good general liability policy that covers all of these. Your general liability policy can include all of these as riders to your main policy so you aren't paying five or six different insurance premiums.
If you're a contractor or have a handyman business, you might want to consider purchasing an insurance completion bond for large projects you're working on. This insurance will protect you in the event a project can't be completed for reasons outside of your control. Most banks and lenders require contractors to purchase this type of insurance in case of any mishaps.
The business insurance world is vast and brokers will tell you that you need to purchase everything from A to Z to protect your business. Find a good insurance broker you trust and talk about your business, employees, and automobiles to start. Next, discuss what sort of riders you can add to the general liability policy to ensure you and your business are protected.
Photo credits: 1) Russell Grace Insurance by Digital Howell; 2) No Insurance pay 500,000 by Astrycala.