Last Updated: August 9, 2010
Part 1 of 2
Business owners have unique insurance needs when compared to non-business owners. There are insurance needs that deal with operating a business plus insurance needs that surface in family life. The first part of this article discusses insurance policies business owners should consider for successful operation of their business. The second part will discuss more traditional insurance that will help create financial security for the family.
Business Owner Insurance Needs
- Business Property Insurance: This type of insurance indemnifies the owner or user of property for its loss, or the loss of its income-producing ability, when the loss or damage is caused by a covered event such as a fire or explosion. This baseline form of insurance is required for almost all businesses.
- Professional Liability/Errors and Omissions Coverage: Even the most skilled professionals make mistakes. A professional liability/errors and omissions policy protects professionals and quasi-professionals against financial liability incurred as a result of errors and omissions in performing professional services.
- Business Overhead Expense Insurance (BOE): When a business owner becomes disabled, overhead expenses continue to accrue. This type of insurance for small businesses "keeps the doors open" by reimbursing the insured for business expenses incurred during a disability. Common expenses covered under a BOE policy include: lease, rent or mortgage payments, utilities, property taxes, and accounting and legal fees to name a few. Policy premiums are tax-deductible as an ordinary and necessary business expense. A BOE policy assures customers, creditors and employees of business continuity.
- Workers’ Compensation Insurance: This is an insurance policy that agrees to pay benefits on behalf of an insured employer, should one of his employees become injured on the job. It could also take the form of a schedule of benefits payable to an employee by his employer without regard to liability. Policy requirements vary by state, and in some states, a business owner does not need to be insured.
- Key Person Insurance: This is life and/or disability insurance owned by a business entity on the life of a key individual that will, in the event of his or her death or disability, offset a loss in earnings and provide the funds necessary to find, hire, and develop a replacement. Key person’s policies are designed to offset losses resulting from the death or disability of a key person, such as reduced sales, interruption of a vital research project, flow of production, or an impaired credit standing.
- Group Benefits Package Insurance: Businesses in competitive industries require a robust benefits package to attract and retain quality employees. Common offerings within a benefit package include: group health, dental and vision insurance, group short-term and long-term disability insurance and group life insurance. Some employers pick up the tab for all benefits and others share the cost with the employee.
- Buy/Sell Insurance: Buy/sell agreements usually require a deceased or disabled business owner to sell his or her interest in the business. The business continuity agreement of sorts agreed to buy business owners prior to death or disability. Buy/sell life and disability policies provide the surviving business owners with enough capital to purchase the deceased/disabled owners business interest.
- Directors and Officers: This ever increasingly popular form of coverage insures corporate directors and officers against claims — most often by stockholders and employees — alleging financial loss arising from mismanagement.
- Business Auto: A commercial auto policy that includes auto liability and auto physical damage coverage. A business auto policy addresses the needs of most commercial entities as respects auto insurance.
This comprehensive list identifies just a handful of the coverages business owners should consider to allow for smooth business operations. Next month’s checklist will identify insurance needs for financial security for the family — needs unique and separate from business insurance needs.