Insurance Needs of Small-Business Owners
As a business owner, you understand that your business is too valuable to risk exposure to a loss that could be avoided or minimized by the right forms of insurance. Which coverage you need depends on the nature of the business and the specific risks you're likely to face. The size of the business, its operations, and the products and services it offers help determine the types and amounts of coverage to purchase.
Types of Policies
At one end of the spectrum, if you are a sole proprietor working from home, you may only need to obtain a rider to your homeowner's insurance policy that will cover business use of the property. However, if you own a professional office or retail shop, you may find a business owner's policy is the economical solution that suits your needs. Similar to a homeowner's policy, a business owner's policy covers bodily injury to business visitors
as well as property damage. Coverage to protect against product liability claims and loss of income due to business interruption can be purchased at an extra cost.
On the other hand, many types of businesses -- for example, manufacturers and restaurants -- typically don't qualify for business owner policies and must obtain commercial policies. These tend to be more expensive but more flexible than owner policies, covering certain basic risks supplemented by additional coverage based on
the particular needs of the insured.
There are three types of commercial insurance:
General liability -- These policies provide protection against payments that arise from bodily injury or property damage to a third party and the costs of defending against lawsuits. Depending on your business, you may need other types of liability coverage, such as product, auto, malpractice, and workers' compensation insurance.
-Property insurance -- The broadest form of property insurance is called "all risk."
More specialized property policies insure cargo carried in company vehicles, losses from a crime such as embezzlement and burglary, and inland marine.
-Special -- As the term suggests, special policies deal with a diverse range of special purposes.
Examples include business interruption, plate glass, boiler and machinery, fire sprinkler, credit life,and surety bonds. Although standard packaged policies intended to cover a range of common business perils can help simplify insurance selection, such policies tend to be less comprehensive than they used to be. The trend toward increasing specialization in commercial policies has made it necessary for more businesses to purchase additional coverage addressing specific risks.
Shopping and Maintenance
Because identifying specific risks is so critical to obtaining appropriate coverage, it's important to work with an insurance professional who knows how your business operates, as well as the policies that can address your particular needs. If your business entails a variety of higher risks, you may want to consider employing a consultant to objectively evaluate the risks of your business and help you obtain appropriate coverage at the
most economical cost. Once you have purchased appropriate coverage, make a habit of reviewing your overall insurance protection annually; and when it's time to renew a policy, carefully check it for possible changes to exclusions, limitations, and deductibles. In addition, be sure to keep insurance policies and all documents and data files you would need to support a claim in a safe place. Safeguarding them ensures that you will be able to submit a timely, well-substantiated claim in the event of a loss.
Although the details of commercial policies can be complex, it's well worth taking the time to understand the risks your business faces and the types of insurance that can protect against potentially crippling losses.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Allindices are unmanaged and cannot be invested into directly.
Erin Eiras is a Registered Representative with and Securities offered through LPL Financial, Member FINRA/SIPC.Investment advice offered through Independent Financial Partners, a registered investment advisor and a separate entity from LPL Financial.