Few things in life are riskier than launching and running your own business. You needn’t compound that risk by neglecting your business insurance needs.
Protecting your business from financial disaster will not only preserve all your hard work and long hours, but it will also help you sleep better. There are three types of small business insurance you need, including one that is mandatory.
While business property and liability insurance is necessary, you’re not legally obligated to have them, whereas employers must provide state-mandated coverage for injuries and illnesses that are job-related through workers compensation insurance.
With that said, however, under no circumstances should a business be uninsured for its property, equipment, and inventory, as well as against its potential liabilities, in this litigious society.
Small business property insurance
Property insurance can be purchased on the basis of the property’s actual value (the replacement cost minus depreciation), its replacement value (the cost of replacing an item without deducting for depreciation), or on an agreed-upon amount (commonly used for art objects and other unique items). Basic property insurance will generally cover your losses in the event of a fire or a lightning strike, and will pay the cost of removing property to protect it from further loss. Additionally, a standard small business policy will usually cover losses from windstorm, hail, explosion, riot and civil commotion, and damage caused by aircraft, automobiles, or vandalism. Optional coverage can insure against earthquakes, floods, building collapse, and glass breakage. Property insurance can be categorized by what is insured and by the events leading to a loss. The Independent Insurance Agents & Brokers of America offers a checklist:
- Buildings and other structures, leased or owned
- Furniture, equipment, and supplies
- Leased equipment
- Inventory Money and securities
- Records of accounts receivable
- Improvements and betterments you made to the premises
- Data processing equipment and media, including computers
- Valuable papers, books, and documents
- Mobile property, such as automobiles, trucks, and construction equipment
- Satellite dishes
- Signs, fences, and other outdoor property not attached to a building
- Intangible property (goodwill, trademarks, etc.)
- Taking stock of your business property
You should take a complete inventory of all your business property, determine its value, and decide what’s worth insuring. Make sure the items you do want to cover are provided for in the basic policy; if not, buy more coverage. For example, you’ll want to make sure your building is covered, as well as your inventory, furniture, equipment, and supplies.
Even if your business rents space, your lease might require certain types of insurance coverage that you must carry. However, just because the building owner carries all the necessary insurance on the building in which you operate, doesn’t mean it will cover any of your equipment, furniture, and other business possessions.
Named-peril policies will cover certain losses resulting only from those perils that the policy names; all-risk policies offer coverage for all perils except those specifically named in the policy. An all-risk policy is usually sufficient for the average small business, but keep in mind that all businesses, and thus their insurance needs, are different.