Types of Insurance Explained
The insurance industry has a product for just about every need, and. as a business owner, you'll have a lot of needs. The sheer number of different types of insurance can feel overwhelming, especially when you're first starting out. You might need dozens of different policies before you're done, but they all fall into a few main types of insurance coverage. If you think of them in those terms, it's a lot easier to navigate the purchasing process.The Main Types of Insurance
When you buy personal insurance for yourself, it falls into two broad categories. One type is insurance that covers people - yourself and your loved ones - and the other type covers the things you own, such as your house and car. You'll also have some liability coverage included in your home and car insurance, to protect you, in case you're sued for causing someone an injury at home or behind the wheel. The same broad categories apply in business insurance, but you'll carry considerably more liability coverage, and this coverage comes in a lot of different forms.
General Liability Insurance
Liability coverage is one of the fundamental types of insurance, and you'll own a lot of it when you run a business. If you're somehow responsible for causing someone an injury or if you've damaged their property, that person or company might have grounds to sue you for damages. General liability insurance covers you for a lot of those common scenarios. If someone slips on ice on your property, or if a piece of debris from your worksite damages a passing car, your liability insurance will cover those, up to the limits of your policy. How much general liability coverage you buy depends on your business, and how big it is. You'll probably have at least a few million dollars' worth of coverage, and larger companies might carry hundreds of millions of dollars in coverage.Professional Liability Insurance
Aside from general liability coverage, there are specialized forms of liability coverage you might need to buy. If you're a lawyer, financial advisor or another professional, for example, you might need professional liability coverage. You'll often hear this referred to as "E & O," for errors and omissions, which are the two main issues this kind of insurance covers. If people rely on your judgment and professionalism for the really big decisions in their lives, you may need E & O coverage to protect you. Everyone makes mistakes - "to err is human," after all - and if your mistake ruins someone's life, they'll expect to get some compensation from you. Medical malpractice insurance is the best-known form of professional liability coverage, but if you're a professional, there's probably a version of E & O that's tailored to your industry.
Directors and Officers Insurance
When you're involved in a company's management, or if you're on the board of a company or a nonprofit, it can feel sometimes like you've got a target painted on your back. The decisions you make every day at work can leave you on the hook for damages in any number of ways. If your company falls short on labor regulations under your watch, for example - playing fast and loose with overtime, perhaps, or not responding vigorously enough to a harassment complaint - you could be personally liable. Directors and officers coverage can protect your personal assets in that kind of situation. It can also protect the company, if one of your directors "goes rogue" and leaves you liable by doing something illegal or unethical. In that case the insurance would protect your company's assets and cash flow.Product Liability Insurance
If you manufacture products, you have a responsibility to be sure those products are safe. Even with the best of intentions and the best of testing, sometimes a product might turn out to be hazardous once it gets out into the world and your customers start using it in ways you never dreamed of. Carrying product liability insurance is a hedge against those nasty surprises. If it turns out your product is flawed, or can be misused in dangerous ways, you'll be covered against the costs of settling any civil suits that might come your way as a result. You might think you've done all the necessary diligence, but remember how long materials like asbestos and lead-based paint were considered completely safe.Data Breach Insurance
Your company's files contain a lot of sensitive information about your customers, whether you do business with private citizens, other companies or both. You have a legal obligation to protect their data from prying eyes, and there aren't many things that can ruin your business relationships faster coughing up your customers' private information. Data breach insurance is a relatively new form of liability coverage, but if you keep customer data it's a prudent thing to own.Umbrella Liability Insurance
There's one more liability policy your business might need to own, and that's what's called an umbrella policy. Umbrella policies are intended to pick up the slack, if there are any gaps in your regular liability coverage, so you could an umbrella policy as the emergency backup. If you're hit with a claim that goes beyond the coverage limits of your other liability plans, or if you custom-tailor some sort of niche coverage to paper over the gaps between what your off-the-shelf liability plans cover, that's where your umbrella policy comes in. Umbrella policies take a "second payer" position, which means your other policies will have to kick in before you can make a claim under your umbrella policy.Life and Disability Insurance
You might think of life and disability insurance as products you use for personal protection - and you'd be right - but it's also important for entrepreneurs, partnerships and the handful of main officers in a company. One of the trickiest problems you'll face in a small business is how you'll keep going if one of you dies unexpectedly or is disabled, and can't continue. It's not easy to organize the funds to buy out a disabled partner, or a dead partner's heirs, so the best answer is usually to have life and disability coverage on each other. Your lawyers draw up a buy-sell agreement, spelling out how you'll value the company when or if that unfortunate day arrives, and the insurance policies provide the cash to make it happen.Key Person Insurance
Outside of your ownership group, a lot of companies live or die on the skill sets of a few key people. Depending on your business, this might be the salesperson who's on a first-name basis with everyone, an artisan whose brilliance with woodworking makes your product unique, or perhaps the engineer, who's the only one who really, really understands your manufacturing process from start to finish. You should buy life and disability coverage on those people, as well, which will help you stay afloat, if you should suddenly lose one of them, and then you'd have to hire and train someone new.Group Life and Disability Insurance
Most types of insurance benefit your company directly, but group plans are different. Obviously, you and your management group will get some use out of them, but primarily, they're a recruiting tool. Offering a decent benefits plan can help you hire and retain staff - which is a good thing, because recruiting and training are expensive - even in competitive settings. Life and disability coverage are part of that picture, and they're especially attractive to employees who have conditions that might make it problematic to buy their own personal coverage. Their loved ones are protected, as long as they're part of the plan, and they're part of the plan for as long as they stick around.Group Medical Insurance
Medical coverage is at the heart of your group benefits plan, because it's not like other types of insurance. Most insurance is like a lifeboat: You hope you won't use it, but it's comforting to know it's there. if you need it. A medical plan is different, because it's actually designed to be used. Your employees will pay a predictable dollar amount, and in return, when they're hit with medical expenses, the insurance will kick in and the insurance will prevent the medical expenses from being a life-wrecking financial blow. That's pretty important, and it's the kind of thing that helps keep people in your company.Worker's Compensation Insurance
Some coverage you buy because you want to, and some coverage you buy because you have to. Worker's compensation insurance fits into the second category. Workplace injuries will happen, and this insurance protects you against that cost. In most states, you're required to have worker's compensation insurance as soon as you have employees.Property Insurance Coverage
Property insurance coverage for a business is basically a scaled-up version of your homeowner's policy, so it's an easy kind of insurance to understand. If a tree falls on your premises, a sinkhole opens up underneath you, or if a flood guts your showroom and ruins a few hundred thousand dollars' worth of product, your property insurance will keep it from being a total catastrophe. Bear in mind that your insurer might explicitly exclude some forms of damage. If your shop is in a flood plain, for example, flooding might not be covered or you might have to pay extra to get that protection.Crime Insurance Coverage
If you're in a location with a high crime rate or if you're in an industry that's attractive to criminals - jewelry stores spring to mind - you'll be at risk of losing money and product because of criminals. Even worse, a robbery can involve a lot of downtime for your business. Police will need to investigate and collect evidence, you might need to replace a window or broken store fixtures, and if it was an especially traumatic incident, your staff may quit or lose time to injury. All of those things can cost you, and a crime-specific policy, can protect you against those costs.Business Interruption Insurance
Your property insurance will usually cover the costs of rebuilding or restoring your shop after a disaster, but what about all the revenues you'll lose while the doors are closed? That's a separate issue, and you'll need business interruption insurance to cover you against that. The basic idea is to provide you with cash flow, as you race to get back in business, because your bills aren't going to go away. You could think of it as a kind of disability insurance, except it covers your business, instead of you.Vehicle Insurance Coverage
Vehicle insurance for your business is much like the insurance you put on your own car, although the coverage amounts are higher. For one thing, commercial vehicles cost more: You can buy a lot of compact sedans for the price of one tractor-trailer. You also probably don't carry a whole lot of value in your personal car, but a big truck might easily hold half a million dollars in product. If the truck is written off in an accident, you'd likely have to write off some or all of what it was carrying, as well.Home-Based Business Insurance
Running your small business from home is an effective way to keep your costs down, including your insurance costs. That said, don't make the mistake of assuming that your existing homeowner's policy covers all of your needs. You'll need to buy additional coverage to protect your business assets, and to replace your income, if something drastic happens - your house burns down, perhaps, or is flattened by a storm - and your business has to go on hold for a while, until you get set up again. When bad things happen, a specialized home business policy protects your company, just as your homeowner policy covers your family's belongings.Source : smallbusiness.chron.com