Most business owners think of insurance as a tax, an expensive necessity to be kept
at a minimum. It is a form of risk management essential to all businesses. As risk takers, entrepreneurs test their abilities in the marketplace every day. By reducing the financial consequences of fires, accidents, thefts or other unforeseen events beyond the entrepreneur’s control, insurance improves a risk taker’s odds.
Legal requirements: In New York State, if you have any employees, you are required to carry workers’ compensation and disability benefits insurance. If you own a car or truck for business you need auto insurance. Often a landlord will require you to maintain a certain level of liability coverage as a condition of your lease. Your bank or your investors might require you to maintain life, business interruption, fire or other types of insurance to protect their investments.
The benefits of coverage: Insurance isn’t just protection against disaster. It has positive benefits and advantages few business owners realize. Employee programs such as health benefits can help you retain good employees. Borrowing against equity in your life insurance or retirement fund is one way to raise capital for expansion. It can also improve your bank and supplier credit. In addition, you can insure against your loss of business income as well as your goods in a fire or other
Insurance Planning: It is important to design an insurance program that suits your business needs and risks. A lifetime of work and dreams can be lost in a minute if you don’t have adequate coverage. Deciding what coverage is adequate takes planning and forethought, just like other aspects of your business. The first step should be to enlist the help of a professional insurance agent, broker or consultant who can explain the types of coverage available and can help develop an effective insurance program for your business.
Understand your risks: The key to an adequate plan is understanding the risks of your business. They will range from the loss of business due to fire or your own protracted disability to unforeseen events like a broken display window or goods partially damaged from a flooded storeroom. Obviously, everyone has different concerns. A young, single person may have less concern for the consequences of personal injury than a middle-aged father of five.
Assess the costs: On a sheet of paper, list all the possible risks you face. Evaluate the losses you will suffer from each. Cover your largest loss exposure first. Use as high a deductible as you can afford, since the cost of a policy varies depending on how much risk you are willing to shoulder. Avoid duplicative insurance but don’t shortchange your business with less coverage than you actually need. Finally, review your program periodically. The coverage you start with may be inadequate for the amount of business you do after six months.
Types of coverage Insurance coverage is available for just about every conceivable risk you might face as a business owner. But the cost and specific coverage of policies vary widely among insurers. The types of insurance available and how you can use it to manage your business’s risk should be carefully discussed with a trained professional agent, broker or consultant. Generally, coverage falls under some of the following categories:
1. Property Insurance covers the gamut of possible loss of property from a multitude of perils (fire, smoke, explosion and vandalism). Often you can buy comprehensive “all-risk” coverage. You can cover the property for its cash value at the time of loss, replacement costs or an appraised value. You can insure against loss of property you don’t own such as a customer’s television. You may need special protection for accounts, bills, currency, deeds, etc. You can insure against the loss of goods in transport as well as your car or truck against theft and collision damage.
2. Business Life Insurance is important as your business actions don’t just affect you. Your family and employees are affected. What happens to a business when the proprietor dies? Does it close? Does a life of family savings go down the drain? Various types of coverage are available that cover numerous problems that arise upon the death of business owners or partners. Among them are sole proprietorship insurance which provides for maintenance of the business on the proprietor’s death and partnership or corporation insurance to retire partner or shareholder interests.