Are All of Your Business Insurance Bases Covered?
Insurance can be complicated, and reading every word of an insurance contract could leave you comatose. That’s where the expertise of a qualified insurance professional comes into play.
A seasoned advisor who understands the risk profile of your business will be invaluable. Before you choose a representative, however, you should know how an insurance agent differs from an insurance broker.
Both agents and brokers connect insurance sellers with buyers. And they’re both compensated by sales commissions. The difference is that an agent, by contract, represents the insurance company. In fact, “captive” agents represent only one insurer, while a broker technically represents the buyer.
That doesn’t mean an agent can’t do a good job for you. Only a short-sighted agent would make recommendations that would harm a client. Still, the distinction is important to keep in mind because not everyone who’s selling something is looking at the long term. Also, brokers tend to handle more complex insurance needs, acting more as consultants to help businesses assess and manage risks.
Here’s a rundown of types of insurance you should consider.
Apart from the realm of employee benefits, which is outside the scope of this article, the most basic kind of insurance is general liability. It covers things such as claims for bodily injury for customers and employees (not including workers’ compensation issues) and property damage stemming from business operations.
The classic example is when a customer slips and falls on your shop floor that was slick because of a spill that didn’t get cleaned up. More extreme, a machine explodes injuring customers and employees alike, along with the rented property where you operate the business.
Typically, insurance to protect you against harm or injury caused by a defect in a product you sell — known as product liability insurance — is folded into general liability insurance. This coverage is especially important for companies that sell a product that could potentially harm someone.
A related category is professional liability insurance, which is also called errors and omissions (E&O) insurance. Sometimes general liability and E&O can be rolled into a single policy, but you might not need it. E&O applies to negligence with regard to a professional service — including law, engineering, consulting, accounting and architecture.
And then there’s property insurance — the business equivalent of homeowners’ insurance. It protects you against the cost of losses from factors beyond your control, such as fires, floods (including plumbing disasters) and various natural disasters. You might also need auto insurance for company-owned vehicles.
Business interruption insurance could be critical if your business is put on hold by the type of incident that property insurance (mentioned above) would cover. You’ll still be incurring expenses (including insurance premiums) if your building was severely damaged in a fire and you have to suspend operations for weeks or months. A business interruption policy can help keep you afloat.
Key person insurance is coverage that you can take out on the life of a business partner (and vice versa). If a partner dies unexpectedly, the policy may buy the deceased’s business shares.
Employment practices liability insurance is yet another category that could be valuable to any company that has employees, regardless of industry. Typically, it covers violations of employee protections covered by the Civil Rights Act. Basic coverage areas include:
- Employment discrimination. This could include basing a hiring or firing decision on race, religion, gender, national origin, age, marital status or sexual orientation.
- Wrongful termination. This can fall under the heading of employment discrimination, but it also covers violations of employment contracts.
- Sexual harassment. The typical issue here is whether you, as an employer, neglected to investigate harassment claims appropriately, looked the other way or fostered a work environment in which sexual harassment flourished.
- Emotional distress. Emotional distress can be the product of threats and extreme bullying. As with sexual harassment, the key issue is whether this is going on in your business and you fail to take necessary remedial action, either proactively or in response to employee complaints.
- Wage and hour violations. This insurance covers failures to comply with the Fair Labor Standards Act, including minimum wage and overtime requirements.
Tailored Risk Management Strategy
If you already have all these types of insurance in place, that indicates you’re highly attuned to business risk — and wisely so. However, many companies have only a few of them lined up. Which ones you need the most, and how much protection to buy within each category, will depend on factors such as your risk tolerance, the perils specific to your industry and business type, and your ability to afford coverage. But knowing what’s available is an essential first step to tailoring a risk management strategy to meet your company’s distinctive circumstances. As mentioned, a qualified insurance expert is highly recommended, as is help from your CPA in organizing and understanding your financial situation.
This article appeared in Walz Group’s September 28, 2022 issue of The Bottom Line e-newsletter
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