When you are just starting your business, it’s easy to lose sight of just how many potential risks your company faces. Yet a single catastrophic event, accident, or lawsuit can wipe out your company before it even has the chance to get off the ground.
What’s more, as we’ve seen with the events of 2020, there are a number of threats and worst-case scenarios that even the most successful companies can fail to consider in advance. Although you can’t protect your business 100% from every single threat, you can greatly improve your chances of surviving any potential liability by having the proper insurance coverage in place.
That said, there are many types of business insurance available, some of which are a must-have for nearly every entrepreneur, and others you might not need. Given this, before you sit down with an insurance agent, it’s vital to know the specific risks your company faces and what types of coverage will best cover those risks.
Insurance coverage all businesses should have
Outside of mandatory coverage, such as worker’s compensation, there are several types of insurance that practically every business owner should invest in. Depending on whether you have employees, use office space, provide services, or manufacture products, you’ll likely need some or all of the following policies.
General liability insurance: A must for all businesses big or small, general liability covers lawsuits initiated by third parties for injuries and/or property damage related to your business. Such coverage is needed regardless of whether you are found at fault, since the legal expenses alone can ruin you.
Commercial property insurance: If you rent or own office space, this policy will cover damage to your property due to fires, storms, theft, and other events. If you work from home, your homeowner’s policy might not cover business-related liabilities, so in that case, you’ll need home-based business insurance.
Professional liability insurance: Also known as errors and omission insurance, this covers lawsuits alleging your professional services caused a client to suffer damages, arising from actions like negligence, mistakes, and violation of contract. Such coverage can be essential for a wide range of businesses—accountants, lawyers, real-estate agents, consultants, IT firms, and others.
Employment practices insurance: This type of liability coverage provides protection for lawsuits initiated by your employees. While this is an often-overlooked coverage, it’s actually one of the most important, since employment claims are the most serious threat to your business, even if you think you are the best boss on the block.
Insurance coverage you may want to consider
Some forms of insurance cover you against more specific liabilities that you may or may not need protection against. Whether or not you need such coverage depends on the size of your company, your leadership structure, your use of IT, and the exact amount of coverage you desire.
Cyber insurance: Cyber coverage protects against damages from threats to your computer systems and databases, such as data breaches, hacking, and network failures. If your business’ computer network is breached and your data is lost, stolen, or compromised, the cost to recover and restore this information can be exorbitant. Such coverage also protects you from lawsuits by customers, vendors, and others, whose data is stolen from your system.
Key-person insurance: This is basically life insurance for your most valuable team members. It can keep your business afloat if an owner, executive, or even a top salesperson passes away. Such policies pay your company the death benefit and can be highly beneficial for small companies which would otherwise collapse in the absence of certain personnel.
Umbrella insurance: Umbrella insurance offers an extra layer of coverage which would pay for any claims that exceed the payout limit of your other policies. Note that umbrella insurance is not offered as stand-alone coverage, and you must first have an appropriate underlying policy in place to qualify for it. In fact, you may not qualify for umbrella insurance if your underlying policy doesn’t offer high-enough payout limits.
Directors and officers insurance: This type of policy protects your board members and executive officers from judgments, settlements, lawyer fees, and other legal expenses if they are personally sued for a decision or action they made on behalf of your company. Unlike your business, these team leaders are not personally protected by a professional liability policy. Such insurance can also reimburse your company if it pays for the defense, judgment, or settlement of a lawsuit on behalf of these individuals.
Business interruption insurance: While property insurance can pay to replace and repair your workspace in the event of a fire, storm, or some other unexpected event, business interruption coverage will help make up for the income you lose from not being fully operational. Note that such policies won’t cover every possible threat that might interrupt your business, only those spelled out in the policy’s terms. Indeed, numerous business owners are currently suing their insurance carriers for denying claims related to COVID-19 shutdowns.
Let a Family Business Lawyer® help
Since each business has its own unique risks and assets, there’s no way to know exactly what kind of coverage your company needs without a full evaluation. Before you speak with an insurance agent, consult with a Family Business Lawyer® to identify the optimal types and levels of insurance your business should have in place.