What coverage do I need?

Many business owners try to skate by without insurance. But this exposes your business to grave risk. Without insurance coverage, a single accident or lawsuit could quickly drain your resources and drive you out of business.

What types of insurance do you need to make sure your business is financially secure? Here's a primer:

  • General liability: This insurance protects you if anyone is injured at your place of business. It also covers any injuries that might be caused by a product or service you sell. Be sure to check coverage carefully because there are often many exclusions to general liability coverage. This is why many businesses also have umbrella liability.
  • Umbrella liability: As you might suspect from its name, umbrella coverage is intended to fill in any gaps left by all your other forms of insurance. If your business is complex or exposes you to many risks, for instance, if you make a product that could injure people or damage their property, umbrella coverage ensures you won't be stuck with a big bill.
  • Property/casualty: You probably wouldn't think of going without homeowner’s insurance. If your business owns property, you need insurance for the structure as well. The most desirable kind of property insurance is "all risks" coverage, which is intended to cover all types of problems rather than "named peril" policies, which cover only a few specific issues. Make sure you get enough coverage to completely rebuild your structure at current costs. You may be able to purchase a policy with an inflation guard, which automatically adjusts the payout amount upward as inflation rises.
  • Business interruption: Could a blackout, earthquake, or storm grind your business to a halt for weeks or even months? Think of New Orleans businesses after Hurricane Katrina, and then consider getting business interruption insurance. Your property/casualty insurance will cover damage to your building, but it won't compensate you for sales lost while your store is rebuilt.
  • Workers' compensation: If your business has employees, it is required to carry workers' compensation insurance, which covers medical bills and lost pay for employees who are injured on the job. Workers' comp also includes employer liability coverage, which compensates families of employees permanently disabled or killed at their workplace. A third, optional portion of workers’ compensation insurance covers employment practices liability. This protects your business from claims related to personnel problems such as discrimination or sexual harassment. States vary in how they manage workers’ comp programs. There may be a state-run or private risk pool you can join to reduce your insurance costs, or you may need to seek private workers’ comp insurance. Check with your state insurance commissioner or department of insurance to find out the rules in your state.
  • Disability insurance: While your workers are covered by federal disability programs, you need private disability insurance to compensate owners and key managers if they're injured and unable to work. This insurance guarantees the insured parties an income, though usually not 100 percent of their salaries, while they are disabled. You can purchase either short-term disability insurance, which protects for up to a year, or long-term disability insurance, which extends indefinitely. Be sure to check for the waiting period a policy requires before benefits kick in, because it varies.
  • Life insurance: If your business would cease to function without you there to guide it, life insurance can replace that lost income and make sure family members are financially secure. You may be required to have life insurance to get a bank loan for your business, but it's a good idea in any case. The most common type of life insurance is term insurance, which only lasts a set number of years, typically until retirement age. Term insurance is cheaper than permanent, or "whole life," insurance. When businesses have multiple owners, often a life insurance policy is taken out by the business on each of the co-owners. Upon the death of one owner, this insurance payout is used to buy out that partner's stake in the business, so that the remaining partners can continue running the business without interference from the deceased partner's family.

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