Starting a Business: An Insurance Perspective

| November 19, 2013

Starting a business can require a significant investment of time and money, but, in select cases, that is a risk we are willing to take. After all, we start businesses to take risks. No risk, no reward, right? There are some risks associated with running a business, however, that we would prefer not to take. That’s were business insurance comes into play. Business insurance protects your organization from unexpected events such as a lawsuit, an injured employee, death of a partner, theft, natural disasters, and more.  

Be sure to have the coverages required by law

Workers compensation is a legal requirement in most states if you have employees. This coverage pays for medical, pharmaceutical, and other health care costs of employees’ work related injuries. It also covers a portion of lost wages while the employee is unable to work. Failure to carry this coverage could result in steep penalties, such as fines, stop work orders, and prison terms.

Auto insurance is required by law at the state level. If you intend on having a commercial auto as part of your operations, you’ll need to make sure you are carrying the proper coverage. Each state has specific minimum requirements for bodily injury and property damage liability. Please note, however, that the minimum limits are rarely sufficient to protect the business from an auto related loss. Consult an agent to assess your exposure and determine the proper auto coverage options and limits.   

Professional liability may be required by law depending on your profession and state. For example, before obtaining a professional license, the regulatory agency granting that license may have a professional liability insurance requirement. Often times there is a specific type of coverage and coverage limit you’ll need to provide proof of before they agency will grant the authority to conduct business in the state. For more details on whether this requirement applies to your profession, contact an agent, financial advisor, or your state’s regulatory authorities.

Contractual insurance requirements

Plan on getting a loan? Your lender or mortgage company may require that you carry a certain amount of property or flood insurance in order to obtain a loan. The property insurance requirement helps to protect the loan provider’s interest in your property. Regardless of the requirement, as the owner of a small business, you’ll want to have insurance for your property. This provides coverage for physical assets, such as buildings, contents, and computer systems. You can also elect to purchase business interruption coverage, which covers lost income in the event of a property related loss. 

If your organization intends on doing business with other organizations, you may be required to carry specific coverages such as workers compensation, general liability, professional liability insurance, and provide additional insured status. Likewise, when hiring an organization to perform a service for you, you should require a certificate of insurance (COI) to confirm that the organization has sufficient insurance coverage in place. The insurance will help protect both your organization and the organization you are contracting with in the event of an injury, financial damages, or other unexpected event.

Building a sound insurance program

While not required by law or contract, there are other coverages available that every business owner should consider. For example, does your business store sensitive data such employee records, social security numbers, or medical information? Hacked or extorted records could cost your organization thousands in damages, legal fees, and notification costs. When paired with strong network security features, data breach insurance can give small business owners peace of mind.

Plan on assembling a board of directors? Directors and officers liability insurance protects company managers in the event they are sued in conjunction with the performance of their duties. Managers can make mistakes, and are often held personally legally liable for them. D&O coverage offers financial security to company managers, which gives them room to make hard decisions with confidence.

There are a wide range of coverage options available, and many of them aren’t required by contract or by law; nonetheless, some select coverages may be key to the success of your business. The best way to determine which coverages are applicable to your area of business is to contact an insurance advisor to start the conversation today.

How to start the conversation

Obtaining business insurance for the first time can be a confusing process, and having the right questions to ask can be half the battle. To help make it a little easier for you, here are some great questions to ask a qualified agent or financial advisor:

What type of coverage do I need at this time?
What types of coverage are pertinent to my field?
Do a need specific coverage to contract with other businesses?
What types of information do I need to gather?

Clarke & Sampson has provided insurance services in the DC metro area since 1946. We provide expert service and guidance on workers compensation coverage, general liability, professional liability, property insurance, and risk management for small businesses.