At this point in our Starting a Business series, let’s assume you’ve found funding and you’re ready to get your business going. However, from the moment you open the front door, you face risk. Accidents could happen. Employees could become disgruntled and sue. Your building could burn down. A computer hacker could steal your customers’ personal information. Almost any bad thing could happen. So how do you protect yourself and your business? By purchasing good insurance policies. Thus, I’m going to cover the 7 types of business insurance start-up owners must have to protect themselves from harm.
Special thanks to insurance agent and entrepreneur, Matthew Bryan, for providing much of the information for this article. Be sure to listen to my entire interview with him in the Podcast above. If you have any specific questions about insurance, you can reach out to Matthew through hitsoncrumblazer.com.
Sure, anybody can talk about insurance. On a personal level, many of you have homeowners’ or renters’ insurance. By law, you should have auto insurance. Hopefully, you have life insurance and medical insurance. Maybe, you’ve been given the opportunity to purchase disability or cancer insurance. Yet, what is “insurance”? If you have an insurance policy, what do you have? Why do you need it? What does it do? Why do I use words like “hopefully” and “given the opportunity” when I talk about insurance? Well, let’s break it down.
According to Wikipedia, insurance is “a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.” Simply put, insurance protects your personal and professional finances. It keeps you from being held personally liable for expenses that come about as a result of accidents, tragedies, illnesses, injuries, losses, or deaths. Essentially, you pay premiums to agencies or companies for a guarantee that they will assume financial responsibility for bad things that could occur to you or to others in or around the property you own.
So let’s get down to it. As a start-up business owner, what types of insurance will you need?
Although its name is pretty generic, general liability coverage protects business owners from personal financial responsibility if someone or something gets hurt on your business’s premises or on your work-site. The cause of the injury doesn’t matter. Customers could trip over their own purses or bags and hold you responsible. One of your sales displays could fall apart and break over another customer’s head. An employee could fall off a ladder when he’s painting a wall or changing a light bulb. You could leave a coffee pot plugged in causing the building to burn down. Essentially, general liability insurance covers expenses incurred when pure accidents happen in or around your business.
If you have employees, workman’s compensation insurance is vital for you as a business owner. It’s employer’s liability coverage that transfers liability from the employer to the insurance company if an employee gets hurt on the job. The most complicated part of this type of insurance, though, is that its rules and requirements are state-specific. So check with a licensed insurance agent to find out what you need to know about worker’s comp in your state.
Here in Tennessee, contractors are required to have worker’s comp insurance when they have one employee or more. Professional “four wall” types of businesses are required to have this type of insurance if they have 5 or more employees. Yet, here’s the problem. If you don’t have worker’s comp insurance, you become 100% liable. If you’ve got 2 employees, you don’t have to have coverage. However, if one of those employees gets hurt, you’re responsible. You have to pay all legal and medical fees. Whereas, if you had workman’s comp insurance, your insurance company would shoulder those financial burdens.
Another type of insurance many business owners need is commercial auto insurance. If you use your vehicle to haul products or equipment, you need commercial auto insurance. Do you have a trailer and a hitch attached to your truck for work-type jobs? Do employees use one of your vehicles to get to or from job sites? Sure, your personal auto policy may cover you a little bit, but many insurance companies are looking for reasons to deny a claim. Therefore, if they see that you’re using your personal truck to haul a company trailer, they may deny the claim. Be smart. Ask your insurance agent whether you need commercial auto insurance before you assume you don’t.
This much-needed type of insurance covers costs associated with theft or damage to the structure business owners rent or own. It also takes care of any personal or business property inside the structure. Typically, general liability insurance protects business owners from accidents that happen on their premises. Yet, property insurance covers the actual premises. In other words, this insurance covers the costs needed to rebuild the structure or to replace equipment, machinery, technology, or furniture should disaster happen. Sometimes, insurance companies will group property and casualty insurance together. This covers any loss of life that occurs during the natural disaster, vandalism, robbery, or accident that damages the business’s property.
Perhaps, you’ll recognize professional liability insurance by its synonymous names. Often called Malpractice Insurance or Errors & Omissions Insurance, this insurance covers “professionals.” Notably, Malpractice Insurance protects medical professionals like doctors, dentists, optometrists, veterinarians, and the like if they accidentally harm a patient in the course of performing their professional duties. Similarly, Errors & Omissions Insurance protects engineers, architects, attorneys, financial planners, tax advisors, insurance agents, and the like if they accidentally make an error or fail to disclose an important piece of information during the course of their work.
If you work with people’s private information, Cyber Liability Insurance is extremely important for you to have in your business. If you keep phone numbers, addresses, social security numbers, or any other personally identifying information on your customers or clients, you need protection. What happens if your data is breached or your laptop is stolen? What are your responsibilities to your patients if that happens? This type of insurance provides you with financial protection and your clients with identity and credit protection if those unfortunate events occur.
Additionally, if you have employees, you need Employee Practices Liability. All it takes is one, folks. One employee could sue you for discrimination or wrongful termination. This employee’s claim could cost you your business. If you don’t have financial protections in place to absorb court costs and attorneys fees, an employee lawsuit could wipe-out all of your money. Therefore, if you plan to hire employees, plan to get Employee Practices Liability.
Insurance is complicated, folks. I don’t expect you to read this article and know how to purchase and price your own policies. You wouldn’t bring your car to a mechanic for diagnosis then hope to fix it yourself. Similarly, you wouldn’t bring this list to your insurance agent and try to quote your own policies. That’s silly. You need to work with a professional, someone who knows the ins and outs of the trade. Although you can choose any insurance agent, I tend to prefer those who work as independent agents. If your agent is not associated with one particular company or agency, you’ll likely have more diverse premium and coverage options from which to choose. Yet, whatever you do, insure yourself against harm.
So what can you expect when you call an insurance agent? Well, agents go through a process to help you choose coverages, premiums, and policies right for you. Here’s what they do:
I hope this article helps you protect yourself and your business from the unexpected. Lean on the expertise of a good agent to help you pick the right types of business insurance for your particular needs. And join us in our next Starting a Business article written to help you hire good employees.