National Insurance Awareness Day is June 28th. Although spending hard-earned revenue on insurance probably doesn’t make small business owners happy, it’s more important than ever to have your business protected.
Here are policies to consider if you run a small business.
1. Business interruption insurance
Business interruption insurance is more important than ever in the new pandemic landscape. This type of insurance can help a business continue to pay its bills while it is closed or its income is down because of a disaster. The coverage can be valuable if your business has to continue paying rent, employee payroll, and other expenses while it is closed and not earning income. For example, if you own a restaurant that was shut down after the building was damaged by a fire or a hurricane, interruption insurance can keep you afloat as you rebuild.
Does business interruption insurance cover losses caused by the 2020/2021 pandemic? It depends on the terms of the policy and how the insurer, and possibly the courts, interpret them. Some state legislatures are also getting involved.
2. Commercial General Liability
Commercial general liability (CGL) is considered comprehensive business insurance, though it does not cover all risks that a business may face. It’s a standard insurance policy issued to protect businesses against various liability claims. Claims could include bodily injury and property damage or others. SmartBiz requires CGL insurance for every SBA loan.
3. Worker’s Compensation
SmartBiz asks for proof of Worker’s Comp insurance if it is required by the state where the business resides. (Most states require it). Worker’s Comp insurance covers medical costs and a portion of lost wages for an employee who becomes injured or ill on the job. Workers' comp insurance also protects companies from being sued by employees for workplace conditions that can cause an injury or illness.
4. Business Property Coverage
This type of insurance covers the assets of the business that secure a loan. The lender wants to ensure that if anything happens, the business will have what they need to get up and running again as soon as possible. Covered losses include computers and media, property of others, equipment breakdown, lock and key replacement, money and securities and more. Of course, coverage depends on the individual policy.
5. Product Liability Insurance
If you manufacture, distribute or sell a product, this type of policy can protect your company from financial loss resulting from a product defect that causes an injury.
6. Flood Policy
If your business is located in a federally designated flood zone, lenders might require this type of insurance. From 2010 to 2014, the average commercial flood claim amounted to nearly $89,000. Flood insurance is the best way to avoid a devastating financial loss.
7. Building Policy
If the business owns the real estate where they operate, SmartBiz requires this type of insurance. (If they lease, it's not necessary) This covers the structure that the entrepreneur owns where they operate their business.
8. Malpractice Insurance
This is a type of professional liability insurance purchased by health care professionals and sometimes by other types of professionals, such as lawyers.
9. Auto Insurance
If your employees drive for your business, are they covered under their own insurance, or yours? If the answer is yours, do you have adequate coverage for each driver and vehicle on the policy? If theirs, does the employee carry sufficient coverage to ensure that any damage done while they’re on the clock will be covered?
Auto coverage is a sticky area that can depend on state law, company policy, and your insurance. If you have employees who drive for the company regularly, make sure to discuss this with your insurance agent, so that your coverage is sufficient. Let your agent guide how the conversation continues with your employees.
10. Health Insurance
This may be required under the Affordable Care Act (ACA) to cover you and your employees. Health care can be very complicated so you should definitely consult with an insurance broker.
Insurance Gaps
These are some common gaps in business insurance policies. Assess their likelihood in your area, and understand what to do if they happen to you. The good news is that any of these coverage gaps can be addressed by reviewing your business policies. On an annual basis, it is best to update valuations, make sure that there are no noticeable gaps that you aren’t prepared to cover, and reassure yourself that you meet all the safety precautions.
Data coverage
Many companies assume that their general liability coverage will handle any physical damage to data systems. While the physical servers or computers, for example, might be covered, the cost of a data breach or loss goes far beyond replacing servers. Covering consumer loss, managing downtime due to replacement systems, and extra IT hours to close any backdoors or loopholes are all expensive.
The losses when a company suffers data damage can run into the hundreds of thousands, and insurance policies may not cover this without additional policies.
Cash value versus replacement cost
One significant liability many companies need to manage is that they insure their assets based on cash value, not on replacement costs. In the event of a disaster, they may not receive enough of a payout to keep their business functioning.
Many businesses use lower values to reduce their monthly premiums, and believe that some coverage is better than none. While this is true in theory, if your insurance won’t help you survive a disaster, then there’s no point in having the insurance in the first place. Understand how much it would cost to replace your assets, and insure at that level.
Employee liability coverage
The most common issue with employee liability at the present time is discrimination lawsuits. Not all employers realize that they fall under the employment category as soon as someone comes in for an interview. Even if a discrimination claim is ultimately determined to be unfounded, the cost and consequences for managing the lawsuit can be extensive.
In a perfect world, treating everyone equally and avoiding inappropriate statements and situations would be all that was necessary to avoid discrimination claims. Unfortunately, the perception of the employee or interviewee is often what is necessary to start the ball rolling. After all, few companies go into the interview room or the board room intending to discriminate against an employee. Having adequate coverage is just the smart thing to do.
Additional resources
The SmartBiz Small Business Blog was created to explore issues important to entrepreneurs in the U.S. Since insurance is so vital, we have several articles that explore different aspects of this topic. Here are posts to help you plan insurance coverage
