Unless you prepare in advance by purchasing business insurance, certain risks could drive your small business into bankruptcy. The most important types of business insurance are property and liability insurance, although other types of insurance are also important for businesses that hire employees. The insurance needs of your business depend on how much risk your business faces and how much you can afford to pay in the event of a loss.
Tangible and Intangible Property
Property insurance protects you against losses due to theft, fire, and other causes of damage and financial loss. In case of a loss, you receive reimbursement at either the property's market value or the cost of replacement. Property insurance covers losses to "tangible" property such as buildings, furniture, business equipment, and inventory. Property insurance also protects you against losses to business documents, such as accounts receivable records. It even covers losses of "intangible" property such as business goodwill, copyrights, and trademarks. Although a standard policy may not protect you against natural disasters, nuclear meltdowns, or toxic chemical spills, coverage for these risks is often available for an extra charge.
General Liability Insurance
Although general liability insurance won't protect you against ordinary business debts, it will protect you against other types of liability as a result of lawsuits. For example, it will reimburse you for payments to customers who are injured on your premises or for traffic accident damages involving a company car. General liability insurance covers bodily injury, property damage, and legal expenses. Certain types of liability insurance will protect you against professional negligence. Medical malpractice insurance, for example, covers losses that result when a careless doctor injures a patient.
Product Liability Insurance
If you are a manufacturer or distributor of a product, you can buy insurance that covers damages caused by defective products. These policies cover losses caused by both manufacturing defects and design defects. How much coverage you need depends on the type of business you transact. For example, a newspaper publisher would typically need less coverage than an equipment manufacturer. Fewer people are injured by newspapers than by lawn mowers.Your need for coverage also depends on where you do business. You may need more coverage in California, for example, because of that state&'s strict product liability laws.
Insurance for Employees
Every state except Texas requires that employers purchase workers compensation insurance on behalf of their employees. Worker's compensation insures employees against job-related injuries. You are not required to purchase health insurance on behalf of your employees. Nevertheless, you may find offering health insurance essential to hiring and retaining talented and experienced staff. Since general liability insurance policies don't protect you against employee claims of sexual harassment or wrongful termination, you may need to purchase employment practices liability insurance to cover those types of risks.
A Business or Insurance Lawyer Can Help
The law surrounding business insurance is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a business or insurance lawyer.