Most people know what it means when someone refers to first responders after a fire, right? They are talking about the firefighters, police, EMTs. Well, your insurers are the first responders when your business faces a crisis or liabilities that could lead to financial loss. The list of adverse events that could pose significant risk to a business could go on and on – vandalism, theft, equipment breakdown, cybersecurity breach, or employee lawsuit.
Despite all your best efforts, bad things do happen. And no matter your level of risk tolerance, you likely spend some amount of time thinking about how to reduce the likelihood that something will go wrong and the severity of the financial impact when it does. This is a concept called loss control.
One of the best ways you can protect yourself and your business is to have business insurance and keep it up to date.
Insurance might feel like a big expense but the costs of not paying attention to potential risks and not having insurance to rely on as your first responder can be far higher when disaster strikes than any front-end savings. You work hard to build up your business, don’t leave it at risk without this critical protection.
Some new business owners fall into the trap of thinking that insurance is not necessary because they formed a limited liability company (LLC). It is important to understand that the protection that is offered by an LLC is personal; it is the separation of personal and business assets.
For example, while most personal assets can be shielded in a lawsuit against an LLC, business assets are not. Through a legal concept called “piercing the corporate veil” even individual members of an LLC may face personal risk in a lawsuit if there has been serious misconduct.
Other well-meaning risk takers sometimes fall into the mindset that relationships with business partners and consumers are positive and if a dispute arises, they’ll work it out. Whatever you do, don’t make the mistake of concluding you are in an industry or in a business arrangement where litigation is unlikely. Litigation can arise from the simplest, strangest, or riskiest of situations. Be prepared for all possibilities.
Not only can insurance cover you against financial loss and damages there are some types of coverage that are required by law.
Here are some common business insurance coverages that you should know about:
General Liability provides coverage against claims resulting from accidents on the property, mainly bodily injury, and physical damage to a person’s property.
Commercial Auto provides coverage for vehicles that are used for business purposes, including vehicles owned or leased by the company as well as personal vehicles used for business purposes. Almost all states require commercial auto insurance.
Commercial Umbrella provides additional liability coverage to businesses beyond what their primary insurance policies offer. When the unexpected happens and legal fees, settlement costs. etc. exceed the cap in the underlying policy this coverage can be a lifesaver.
Commercial Property insurance provides coverage for replacing lost or damaged property because of events such as natural disasters or theft.
Workers’ Compensation provides coverage for paying medical costs and lost wages to employees who are injured on the job, or who become ill. All states require this insurance when a business has at least one employee and many impose heavy fines if you fail to have this insurance.
Business Income (also known as business interruption insurance) provides coverage for operating expenses and lost income in the event of certain catastrophes that force a temporary shutdown of operation, such as a natural disaster, fire, or water damage.
Professional Liability (also known as errors & omissions insurance) provides coverage to protect business professionals against claims related to the professional services they provide, such as claims of negligence or misrepresentation.
Employment Practices Liability (EPLI) provides coverage to protect against may different kinds of employee lawsuits including sexual harassment, discrimination, breach of employment contract, and wrongful termination.
Directors & Officers (D&O) provides coverage that protects the personal assets of executives, directors, and officers of a company should they be personally sued in connection with their actions taken on behalf of the organization.
Cyber Liability provides coverage for businesses in the event of a data breach, cyber-attack, and other types of cyber security issues. Most insurers and risk management and IT experts will tell you that it is not a question of if a breach will occur, but when.
Take a moment to ask yourself if there’s any coverage on this list that you don’t have but you should? It doesn’t matter how great your lawyer or law firm is, they can never entirely eliminate risk. It’s up to you to talk to your insurance person and beef up your coverage.
Meet with your insurance broker and talk to your legal team and other professionals with risk management experience to find the level of insurance protection that is just right for your business.
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