When it comes to owning your own business a bit of planning in the beginning goes a long way.
And that goes double when it comes to estimating the overall costs of running your business, including the cost for having the proper insurance coverage to protect your investment.
Even before you open your doors.
It’s a maze out there, so let’s try to keep it simple.
Business liability options… and cost
Here are the essential facts that you need to know before you select business liability coverage. Generally businesses are concerned about the following categories:
- disgruntled employees and/or unhappy customers who sue
First you need to understand the options you have for business liability coverage.
Most businesses opt for General Liability.
This will cover injury or damage you may cause to people inadvertently. Standard policies usually offer about one million in liability coverage per incident and is often tied to the amount of square footage the business occupies.
The amount you think you need can be fear driven and not based on a realistic risk-assessment of your particular business. To determine the correct amount of insurance you need it is advisable to consult a local trade association or a local insurance agent for your category of business. They usually offer risk-assessment information and can offer an expert opinion on the subject.
According to Lauren Bruen Nicholson of Bruen Deldin DiDio Associates, an independent insurance agency in NY, “make sure that you carefully identify the work you do so that your business is properly classified.”
Property Insurance can be the most costly, covering equipment and inventory.
And it is important to note that there are claims that may not be covered if they relate to utility failures, natural disasters and boiler problems. It may be necessary to add on riders for coverage specific to these events. Again, risk assessment is essential in determining what you really need.
Business Owner’s Policies generally combine liability and property insurance and can be less expensive than multiple policies. You should discuss this option with your trade association consultant or insurance agent.
Other areas you may need coverage are business vehicle insurance and employment practice liability insurance.
Vehicle insurance is pretty clear, but why think about employment practice insurance?
A company can be devastated by claims in employment suits that can include civil rights claims. This specialized litigation is very costly – unless you settle out of court and the legal process can go on for years. Most small businesses don’t opt for this type of insurance. However business that have multiple locations, departments, and managers will increase the risk for this litigation.
There are policies that cover stakeholders.
These are called Key Man insurance – insurance for the loss of a key team member.
The replacement value is determined by the cost it will take to replace someone at their level, in other words salary, benefits, etc. Directors and Officers Liability Insurance covers the company for decisions made at a high level resulting in loss. One third of all privately held companies have D&O claims from shareholders. A good example is the fallout that resulted from failure of BP executives to assess potential risk regarding management and safety practices.
So, essentially, when it comes to figuring out the total cost for your particular liability policy this will be based, in large part, on:
- type of business
- location of business
- policy options
- your claims history
- limits of liability
A recap – when you are reviewing what insurance your business requires get a risk assessment from an experienced and knowledgeable insurance agent who can walk you through different policy options, and their cost, for your particular business.
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