Business Insurance Basics

Does your company have business insurance? If not, you’re making a big mistake. While it may seem like an expense you can ill afford at startup, without the right insurance, one natural disaster, robbery or even a prolonged illness of a key employee could destroy your new company.

The basic business insurance package has five parts: Worker’s compensation, general liability, auto, property/casualty and an umbrella policy. Many businesses can also benefit from business interruption insurance, life insurance and disability insurance. Here’s what you should know about each:

Worker’s compensation: Every state requires employers to have this coverage; it covers medical costs and lost wages for workers hurt on the job. Worker’s comp insurance rates and minimum coverage requirements are set by each state.

General liability: This type of insurance covers your company against injuries or accidents related to your product. If a customer in your hair salon slips and falls, or one of your products injures a customer, liability insurance protects you. Depending on your business, you may also want specific liability coverage related to your industry. For instance, consultants and accountants can get “errors and omissions” insurance, which protects them in case they’re sued by a client over errors in their work.

Auto insurance: Do you provide employees with company cars or have them drive delivery vehicles? Then your business needs auto insurance. The best way to keep costs affordable here is to raise your deductible. As company vehicles get older and decline in value, eliminate comprehensive and collision coverage to save even more.

Property and casualty insurance: This covers your business against losses from fires, burglary, etc. Be sure your insurance guards against all risks you are exposed to. For example, if you’re in a flood zone, you’ll want to be sure that’s covered in the policy. Try to get replacement cost coverage, which pays you enough to replace damaged or lost property at current prices, rather than the cost when you bought it.

Umbrella insurance: This protects you against liabilities not covered by your other policies, or if you are sued for an amount that’s more than your other policies will pay.

Business interruption coverage: If your office burns down, property and casualty insurance pays to replace the equipment you lost in a disaster, but who pays the income you’re missing out on during the time you can’t open your doors? Business interruption insurance covers your expenses while your company is out of commission.

Life insurance: Banks often want you to have a life insurance policy before they will make a loan to your business. Also look into buying life insurance for your “key man”—that is, any business partners, key stockholders or other crucial employee. In case of the key person’s death, the insurance pays you enough money to purchase his or her shares from surviving relatives.

Disability insurance: This pays money that replaces a percentage of your salary if you are disabled and can’t work for a period of time. A related option is “business overhead” insurance, which pays to cover your business’s overhead costs if you can’t work for a certain time.

To get the best deal on insurance, look for an agent who understands the insurance needs of small businesses and your particular industry. While price is important, it’s not the only factor. Look for an agency that will be around for a long time and offers personal service. A good agent can save you money while still being sure your assets are covered.