Last Update: December 16, 2015
As a small business owner you’ve undoubtedly worked hard to build your company. But while you’re managing the day-to-day it’s just as important to plan for the unforeseeable future and protect your company and employees with small business insurance.
We live in a litigous society and there are many reasons your company could be sued. From asking unlawful pre-employment questions, termination errors and dishonest employee evaluations to uninformed medical request decisions, millions of civil lawsuits are filed every year in the United States.
Jim Cramer, the host of CNBC’s Mad Money and a co-founder and chairman of TheStreet.com, “regularly mentions that civil litigation in America costs the economy 2% of GNP (Gross National Product) each year. In other words, the sum of goods and services produced in America is reduced by 2% because of the economic confusion, distractions, delays, and dislocations caused by the American method of handling civil litigation,” according to LegalEthicsandReform.com.
“Two percent (2%) does not seem like much but consider that economists believe that one percent of GNP translates into about 1.2 million jobs. So it could be said that the American civil litigation system causes about 2.5 million people to be unemployed who would otherwise have jobs.”
So rather than lose sleep over these issues, you can take precautionary steps to protect your company; one of them is purchasing small business insurance. Since most entrepreneurs can’t self-fund attorney fees and possible awards resulting from a lawsuit or claim, it’s a worthwhile investment.
What options should you consider to protect your small business? Here are five coverage options every entrepreneur can benefit from:
1. Form a limited liability business entity for your company.
While not strictly a form of insurance, it can go a long way in shielding your personal assets (although not business assets) from creditors. Should your business encounter lawsuit abuse at least you won’t have to lose your home and personal finances in the fallout.
2. Commercial property insurance coverage.
Sure you and your employees may be very careful, but you cannot control the carelessness of others. Commonly experienced business losses including property damage and theft can significantly impact business operations. Should your business’s valuable assets be stolen, damaged or destroyed, with small business insurance coverage you can rest assured you will be adequately compensated.
For example, employee theft, known as “defalcation insurance,” should be a consideration for every small business owner with a large on-site staff. Other unforeseen hazards could impact your business location: such as flooding, earthquakes, tornado’s and hurricanes. Don’t forget to cover your business possessions as well as potential damage to the premises. If you are leasing corporate office space, chances are your landlord will have specified minimum coverage amounts in your lease.
3. Business liability insurance coverage.
Hopefully you won’t ever experience the tragic nightmare of a client who trips over the office rug you bought on your last trip overseas, and falls head first into your glass coffee table.
Having business liability coverage will protect your small business from personal injuries that occur on your premises. There are insurance packages, also known as business owner policies (BOPs) that “assemble the basic coverages required by a business owner in one bundle,” according to Investopedia. “It is usually sold at a premium that is less than the total cost of the individual coverages.”
4. Business interruption insurance coverage.
Also referred to as business continuation coverage, this type of insurance is designed to ensure that your business can continue to operate when you’re injured or otherwise incapacitated. Property insurance may replace what’s been damaged, but what will replace the lost profits, taxes, and salaries that still need to be accounted for while you’re unable to be actively involved in your business?
5. Product liability insurance coverage.
Any time you “produce” a product (i.e. furniture, food, toys, clothing, etc.) that is distributed in the marketplace, you run the risk of a lawsuit.
“Product liability insurance protects [your] business from claims related to the manufacture or sale of products, food, medicines or other goods to the public. It covers the manufacturer’s or seller’s liability for losses or injuries to a buyer, user or bystander caused by a defect or malfunction of the product, and, in some instances, a defective design or a failure to warn.”
Food could spoil and cause health problems; furniture could break and injure a senior citizen; a toy could shatter and hurt a child; clothing could catch fire. Because the damages for these lawsuits can run into the millions, it makes sense to cover yourself and your business.
Other types of insurance you may want to consider include: malpractice and omissions coverage, workers’ compensation coverage, employment practice coverage, disability/long term care coverage, and key person/life insurance coverage.
Remember: you don’t have to research small business insurance coverage options on your own. An insurance agent or broker can review all of the options available for your small business and provide quote comparisons.
Need to find a small business insurance agent? Ask your colleagues or trade association for referrals. Ensure that the agent or broker has experience with businesses like yours — in your industry. To know which questions to ask, get a copy of my program: How to Choose and Use Attorneys.