5 Must Have Components Of A Business Insurance
/Starting a business can be daunting. The complexities and uncertainties that businesses face make it difficult to thrive in a world filled with both natural and man-made disasters. Even before hiring the first employee, business risks exist. And when your business is all set and everything begins to look rosy, a single lawsuit can creep in and wipe out all your business profit even before you start earning profit from the business.
You’ll be risking so much money by not properly protecting your business. A good chunk of money has to be invested into both investigatory and pre-launch costs. One of these costs is insurance policy premium cost. While it not necessary, business insurance can save your business from a lot of woes.
There are different types of insurance policies designed to help protect businesses from danger but picking the right insurance requires an apt knowledge of the options available. Even if you know the right insurance to pick, you should avoid pitfalls in the insurance policy to ensure you get the best out of the plan.
Some common insurance mistakes that policyholders make include not properly reading the policy document, not customizing the insurance policy to suit, and using price as a major yardstick to determine the ideal insurance cover.
Need a real-life example of why you should avoid those common mistakes? Here’s one: in a case involving Excelsior Insurance Co., a federal appellate court upheld the decision of a lower court that the term “you” and “your” as referred to in the insurance policy is ambiguous. As such, the policyholder T.G.R. Enterprises Inc. had to bear the legal cost and penalties involved.
Here are 5 insurance components your business insurance should cover:
1. Professional Liability
Claims as a result of physical harm from the failure of your business to perform its responsibility may be large enough to wreck your business.
In December 2019, an architectural firm was sued $10.7 million due to failure to perform architectural responsibilities. To prevent such occurrences, small businesses should opt for professional liability insurance, which is sometimes referred to as errors and omissions (E & O) insurance. This type of insurance will help cover your business from penalties from legal litigation due to error or a failure to perform a task.
Every business has its own peculiarity and uniqueness, thus, there is no one-size-fits-all insurance cover. Every industry and business has its concerns and worries that have to be discussed with the insurer.
To get the best policy from your insurer, it’s imperative that you research common causes of litigation for your business, and ensure that the insurance policy clearly covers them.
Some common situations that lead to lawsuits that can be covered by business insurance include clerical errors, misunderstanding, missed deadlines, and failure to disclose information. Ensure that your professional liability insurance properly covers those potential sources of litigation outlined above.
2. Workers’ Compensation
It’s imperative that you plan for your workers’ compensation the moment you hire the first client. This insurance should cover disability, medical cost, or any woe that might occur to any employee during work. Even low-risk works can still have some level of risks that might cause bodily harm to employees. A simple slip-and-fall may lead to pricey claims.
Having poorly formulated workers compensation insurance is tantamount to not having any policy at all.
To get the best from your insurer, ensure that the insurance company conforms to state dictates on liability limits, benefits and coverage terms. Companies that don’t conform to state statutes should be avoided as they can’t properly issue you the best workers compensation coverage.
3. Cyber Liability
A single data breach may cripple your small business. A lawsuit that arises from a data breach in a business that stores private information about its clients may be to the tune of millions. Even if you can afford such an amount, it’ll definitely take a huge chunk of your business revenue. Also, you’re tasked with the responsibility of informing your customers of the data breach, which can be an overwhelmingly expensive process.
To shield your business from the cost of lawsuit(s), the capital intensive process of notifying your customers, and the cost of remediating the breach, you should opt for cyber-liability insurance.
You need to ensure that the insurance policy doesn’t have a threshold that caps your claim to an amount below $200,000. This is necessary as it’s estimated that the average annual cost of remediating data breaches for businesses is $200,000.
4. Commercial Property Protection
A common misconception small business owners have is the assumption that they don’t need commercial property insurance if they don’t own their business residence. Maybe they’re right, but not entirely.
Businesses have options to focus their insurance coverage on two different targets.
In an instance where you own the property, it’s best to insure the property to its full insurance cost.
If you don’t own the building, then the most reasonable option is Business Personal Property Insurance. With this, you can be guaranteed that the insurance company will cater for the cost of everything in your office if they’re damaged.
A major mistake most businesses make here is not signing for a policy that covers their assets. Imagine renting an office space but only paying insurance premiums on the building. As silly as that sounds, it’s the most common mistake made by commercial property insurance policyholders.
5. Business Interruption Coverage
Your business will definitely be interrupted in the advent of a catastrophe. Within this period, you probably will suffer a major revenue loss as your staff and machines won’t be able to work optimally.
As such, it’s best to opt for business interruption insurance as it’s created to compensate for lost time in the cause of a catastrophic event.
When filing for this insurance, a major mistake to avoid is not considering the indemnity period. The indemnity period is the duration of time an insurance company will provide cover for your business. The indemnity period could be a time duration for replacing your machinery or a time you need to undertake regeneration work on your building.
When you do due diligence on your insurance policy, it can be a smart way to reduce business cost due to unforeseen legal litigation. The keyword here is “due diligence.”
In Summary
You can’t completely come to a conclusion on how much money you need to start your business without factoring in your insurance costs. While some types of insurance are compulsory, a good chunk of business-friendly insurance is not. Also, you need to watch out for some components of the insurance as it pertains to your business to be properly insured.