Safeguarding Your Business: Key Insurance Needs for Small Business Owners

My clients typically come with many questions about the types of insurance coverages and the amount they need to spend so I have a Golden Rule about business insurance that you can read at the end. However, here’s a guide to the most common types of business insurance to get you started.

1. Business Property Insurance: Business Property Insurance covers damage to your business assets, including equipment, furnishings, inventory, and vehicles. The loss could result from a fire, natural disaster, theft, or vandalism.

2. General Liability Insurance: General Liability Insurance covers injury to your customers while on your premises or from your products and services. Almost all businesses need this insurance, and it is required in many contracts. Most federal and state procurement contracts specify $1 million coverage as the minimum.

3. Professional Liability Insurance: Professional Liability Insurance covers mistakes made by the company. This type of insurance is essential for industries where errors can have significant consequences, such as medical malpractice (medical professional liability insurance) or errors and omissions insurance for consultants and advisors.

4. Business Interruption Insurance: Business Interruption Insurance provides compensation for lost income if your business operations are halted due to unforeseen events, such as equipment failure or natural disaster. You can read my personal story below regarding equipment failure. This coverage becomes invaluable when unexpected disruptions force your business to close temporarily, impacting revenue streams and potentially affecting your ability to pay expenses and employees. In my community small businesses benefited from this insurance due to a roof collapse in one case and then another case when an ice storm forced retail shops to close on the last Saturday before Christmas.

5. Workers’ Compensation Insurance: Workers’ Compensation Insurance pays for injuries to your employees while they are at work. In many states, including Virginia, it is required for businesses with three or more employees. However, even for businesses with fewer employees, having this insurance can protect you from potential liabilities arising from workplace injuries.

6. Key Person Insurance: Key Person Insurance is life insurance on the owners or key employees in a business. This is often a term life insurance policy and is typically required by lenders to ensure business debts can be repaid after the death of a key individual. It also provides financial stability during the transition period following the loss of a key person.

The Importance of Insurance: A Personal Story

I often illustrate the necessity of business insurance with a personal experience. Shortly after opening our restaurant, disaster struck. Overnight, our refrigerated prep table malfunctioned, causing our stored food to spoil. With repairs not scheduled until the following day, we faced a tough decision: close our doors or risk food safety and customer satisfaction.

We opted to close for two days, posted a notice on the door, and began disposing of the spoiled food. Remarkably, within 20 minutes of our decision, our insurance agent appeared at our doorstep. Operating in a small town had its advantages; news traveled fast. He promptly assessed the situation, advising us to document our food loss and projected revenue loss.

Thanks to our proactive insurance planning, we were covered for both the spoiled inventory and lost revenue under our business property and business interruption policies. This enabled us to compensate our employees for their missed hours, despite not being legally obligated to do so. For many of them, living paycheck-to-paycheck, this gesture alleviated significant financial strain.

Golden Rule: Consult with an Insurance Professional

My advice to small business owners is straightforward: Seek guidance from an insurance expert. They provide tailored recommendations based on your business needs, ensuring you are adequately protected without overpaying for unnecessary coverage.

Conclusion

Whether you’re launching a startup or expanding an existing venture, safeguarding your business with comprehensive insurance coverage is non-negotiable. Start your journey by consulting a trusted insurance advisor to secure peace of mind and protect your hard-earned assets.