Should You Insure Your Business?
Purchasing business insurance is like paying for licenses and permits for your business. It is something you know you need. It is also a cost of doing business, but it is an expense you would rather do without. Without insurance coverage, a natural disaster, personal injury lawsuit, theft, workplace injury, or other catastrophe could cause devastating losses for the company. Many companies, especially small businesses, do not have the liquid assets to cover such losses. Insurance is the safety net that can help a business survive certain events and legal issues.
As a Maryland business attorney, I ask clients several questions to help them decide if they need business insurance coverage:
Does your business own assets?
Do you have employees?
Are you personally responsible for business debts or liabilities?
Do you intend to elicit investors or apply for business loans?
Could your business be sued in the future?
Could something terrible occur that could hurt your business you cannot foresee right now?
If you answered yes to any of the above questions, you probably need business insurance. The type of business insurance you need depends on many factors. Consulting with a Maryland business attorney can a good way to learn about the various types of business insurance that your company might need to protect your interests and the best interests of your company.
Top Ten Reasons Why You Need to Insure Your Business
Before we examine some types of business insurance you may need to consider, let’s look at some reasons why your business needs to be insured.
1. You are required to have insurance by law.
Some types of insurance are required by law. For instance, you may have to carry workers’ compensation insurance under the Maryland Workers’ Compensation Laws. Depending on the size of your business, you might also be required by state and/or federal law to carry unemployment and disability insurance. If your company operates a vehicle, you are required by state law to carry minimum liability insurance coverage for each vehicle. Failing to carry insurance required by law could result in costly fines, but it also could result in your company being closed until you comply with the applicable laws.
2. Contracts may require insurance coverage.
Several types of contacts require parties to carry certain types of insurance. Leases for real estate often require your company to maintain premises liability insurance to protect the property owner from losses. You may also be required to insure leased vehicles and equipment as well as any assets secured by liens. Sometimes, client and subcontractor contracts may also contain clauses requiring certain insurance coverage.
3. Protection from Acts of God.
You can take steps to prevent certain events; however, you cannot prevent Acts of God. Hurricanes, floods, earthquakes, and fires can destroy your business without a moment’s notice. Without insurance, you are responsible for the total losses from a natural disaster.
4. Provides liability protection against claims and lawsuits.
Defending claims and lawsuits is part of conducting business. Most business owners accept that they will, at some point during their business career, need to defend themselves and their company against an angry customer, disgruntled employee, or another party. Liability insurance protects your company’s assets from various claims and lawsuits by providing funds to defend the lawsuit and pay the claim if you fail to win the lawsuit.
5. Assists in attracting and retaining key employees.
Benefits are an important incentive for attracting the best talent in your industry. Failing to provide insurance for employees may make it more difficult to attract and retain the best of the best in your industry. Your employees are an asset to your company. Providing insurance also protects your employees’ health and well-being so they continue to contribute to your company’s goals effectively and efficiently.
6. Protecting personal interests and assets.
Depending on the type of company structure you choose for your business, you could have a substantial risk of personal liability if your company is sued. Liability insurance and other types of business insurance can help protect your personal interests and personal assets if the company is sued.
7. You may need to attract investors or capital.
Investors will be uncomfortable, and many will be unwilling to invest in a company that does not have the required insurance coverage. They will also shy away from a company that does not have adequate insurance coverage for other matters, such as liability insurance. Banks and lenders will also want proof that the company has the required insurance to protect the bank’s interest regarding the loan.
8. Peace of mind for you and your family.
Operating a business can be stressful. You have many concerns and obligations. By purchasing business insurance, you can reduce some of the stress by knowing that should certain problems arise, you have taken the steps necessary to mitigate the damage and losses for your business and yourself.
9. Benefits for you and your business.
Sometimes, your business may need monetary benefits from insurance coverage. A natural disaster, loss of a key employee, or other catastrophe could cause business interruption. Certain types of insurance coverage provide monetary benefits for the business when certain circumstances interrupt business operations.
10. It is a wise choice to make.
While you may not be required to purchase each type of business insurance by a federal or state law, it is a wise choice to make in most situations. Often, the benefits and insurance coverage available are extremely affordable. Most companies can obtain excellent coverage at a low price. Having insurance protects your company, yourself, your employees, family members, and customers. It is just the right thing to do when operating a business.
What is Business Insurance?
Business insurance can refer to one of many types of insurance coverage that protects businesses and business owners from liability and losses. The specific business insurance you need depends on many factors, such as whether you have employees, does your company handle hazardous materials, do you own motor vehicles, do you have a physical location for operations, and many other factors.
Review all types of business insurance to determine the insurance policies you need to purchase. Also, insurance coverage may be purchased in various amounts. The amount of coverage is another important factor to consider. You want to ensure that you have sufficient coverage to protect your company in the event of catastrophic events and losses.
A Maryland business attorney and a professional business insurance agent can help you review the insurance coverage available and the coverage amount you should purchase to adequately protect your company.
Common Types of Business Insurance Policies
Below are several types of business insurance policies that many companies need in the course of doing business:
Workers’ Compensation Insurance — Companies in Maryland with employees are required by law to purchase workers’ compensation insurance coverage. Workers’ compensation pays benefits for employees injured on the job or developed an occupational illness.
Unemployment Insurance — Maryland employers are also required by law to pay unemployment tax liability based on their taxable payroll and benefit charges during the past three fiscal years ending on June 30.
General Liability Insurance — While not legally required, a business should have general liability insurance to protect it from liability for certain claims. General liability insurance can cover losses from claims related to physical injuries on business property, property damage caused while performing or carrying out work, slander, libel, and misappropriation. However, general liability insurance may not cover all instances. You must review the exclusions of the policy to determine if you need to purchase riders or other insurance policies for full coverage.
Commercial Property Insurance — This type of business insurance protects your business equipment, office, and inventory from damage and loss caused by a variety of perils. These insurance policies typically cover losses from fire, theft, vandalism, and weather-related damages. However, some natural disasters may not be included in the policy unless you purchase a rider to cover events such as floods, tornadoes, hurricanes, earthquakes, wildfires, and other water damage. Riders to cover these “Acts of God” may be purchased for an additional cost.
Product Liability Insurance — General liability insurance may not be enough to cover injuries and losses caused by a defective product. Product liability insurance can be a stand-alone policy or a rider to your general insurance policy. Usually product liability insurance coverage is affordable for the protection from liability offered to your company for a mistake made somewhere in the chain of production, marketing, and sales.
Professional Liability Insurance — Doctors, lawyers, accountants, and other professionals typically need an errors and omissions (E&O) insurance policy to protect them from allegations of malpractice or negligence. If you or your company offer any professional services, you should investigate professional liability insurance coverage to mitigate potential future losses from a claim or lawsuit.
Employee Benefits Insurance Coverages — Most companies offer their employees health insurance, disability insurance, and other benefits as part of their employment agreement. Small business owners may want to research health insurance policies they might purchase that can include themselves and their employees.
Employment Practices Liability Insurance — Also, a company may want to consider employment practices liability insurance (EPLI) which covers the business from a variety of claims by employees, including wrongful termination and employment discrimination.
Key Person Insurance — This type of business insurance provides benefits for the business if a key executive or the owner of the business dies or is incapacitated. The business is insured against losing income and/or profits during the transition period of placing another person in the key person’s role.
Motor Vehicle Insurance — If the company owns and operates motor vehicles, the vehicles should be fully insured (i.e. liability, comprehensive, collision, etc.) to protect the business from liability as well as protect the company’s assets in the event of an accident.
Business Interruption Insurance — If a disaster strikes, it could take months for you to rebuild your business. During that time, your creditors expect to be paid and your debt continues to accumulate. Business interruption insurance compensates the business for loss of income for a specified period during and after the event.
Home Based Businesses — If you operate your business from your home, you may need specialized business insurance to protect your personal and business interests. A qualified insurance professional and your Maryland business attorney can work with you to ensure you have all the coverage you need as a home-based business.
The above list does not include all types of business insurance. Companies working in specialized fields may need additional types of insurance coverage. Always work with your attorney and your insurance agent to determine the insurance coverage you need to protect against future liability and losses.
Things to Consider When Shopping for Business Insurance
As with any business expense, you want to obtain the best value for your money. However, cheaper isn’t always better. You want to shop around to find the best insurance premiums for the coverage you need. Compare coverage and premiums from multiple carriers before you choose a specific insurance provider. Other things to keep in mind as you search for business insurance coverage:
Assess your risks to determine the type and amount of insurance coverage you need, including researching state and federal laws applicable to your industry.
Properly estimate the insurance needed. It is typically best to have more insurance coverage than to realize you do not have enough insurance coverage when you need it.
Only work with top-rated insurance providers and licensed insurance agents.
Carefully consider the amount of your deductible. As the deductible increases, your premium should decrease. However, you need to ensure you can cover the deductible in case of a claim.
Always read the entire policy, including all the fine print, exclusions, and riders, before purchasing coverage. Taking the time to read the entire insurance policy now could avoid a costly problem in the future.
Evaluate your insurance needs annually. Your insurance needs will change as your company grows. You can prepare for any future event by evaluating your insurance coverage and your current insurance provider each year to determine if changes are necessary to reflect your company’s current needs.
Contact a Maryland Business Attorney for Help
If you have questions about business insurance or other business matters, contact a Maryland business attorney for assistance. Working with a business attorney before you experience problems can often head off time-consuming, expensive legal matters in the future. Contact Thienel Law today. Maryland business attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.