Being your own boss is something that many Americans seek after. Starting a business, as rewarding as it can be, exposes you to risks that you may not be aware of.
General Liability
People can get injured and property can get damaged. If this happens at your place of business or on your jobsite, chances are that you will be found liable, one way or another. Examples of these types of exposures include:
- A customer that slips in your store and is seriously injured.
- Construction site accidents in which bystanders are injured or their property damaged.
- One of your employees is cleaning an expensive kitchen surface in a customer's home and causes damage.
There are many more scenarios in which you may be held liable for bodily injury or property damage. In cases of bodily injury, especially, the amount of damage can be substantial. One way you can transfer that risk away from yourself is buy securing a Commercial General Liability (CGL) policy. A typical CGL policy provides the following coverage.
- Bodily Injury & Property Damage Liability
- Personal & Advertising Injury (Libel, Slander, Defamation of Character, Invasion of Privacy, Copyright Infringment, etc...)
- Fire Legal Liability or Damage to Rented Premises
- Medical Payments (A smaller limit often viewed as a "goodwill" coverage to hopefully avoid costly litigation by covering incidental Medical Expense Payments for others)
Most CGLs are written with a $1,000,000 limit for each occurrence and a $2,000,000 general aggregate limit. The general aggregate is the maximum amount payable in a policy term regardless of the number of occurrences.
Workers Compensation & Employer's Liability
The workers compensation policy actually has two parts, workers compensation & employer's liability. Part one is the same on all workers compensation policies and the coverage amounts are defined by a state's statutes. If you look at the workers comp section on one of your certificates you should see the box "WC Statutory Limits" checked. The only thing that may differ among policies are the states listed in which coverage is afforded to you. Workers compensation usually provides four basic benefits.
- Medical
- Disability
- Death
- Rehabilitation
Workers compensation is mandatory for most business owners. It is the responsibility of the business owner to provide a safe and healthly work place for their employees. There are very few exceptions where a business would be exempt from buying workers comp. Chances are you are required to have it in place even if you currently do not.
Part two, employer's liability, is designed to protect the employer against cases in which his/her negligence caused or contributed to the employee's injury or disease. These claims must be brought by some one other than the employee, such as a family member. Employer's Liability limits are divided into three parts.
- Bodily Injury by accident
- Bodily Injury by disease each employee
- Bodily Injury by disease policy limit
Make sure that your Employer's Liability limits are $1,000,000 for each of these three categories. The premium cost is usually only another $100-$250 per year.
Business Auto
If your business owns any autos or if autos are used in your business in any capacity then you should have a business auto policy (BAP) in place. Many people avoid buying a BAP because they feel it is too costly. They allow their vehicles to be insured on their personal auto policies. A single claim in which the personal auto policy proves to be innadequate will be much more costly than the small difference in premium charged by the BAP.
Some of the obvious risks associated with operating vehicles are bodily injury & property damage liability while driving and physical damage to your vehicles. Other risks that may not be so obvious include:
- Non-owned auto liability. This exposures usually arises out of employees using their own vehicles for business.
- Hired auto liability. This exposures usually arises out of renting vehicles for business use.
- Injury to employees while driving.
- Loss of Use. This may be especially important if specialty vehicles are vital to your operation.
- Family Members of employees that operate your business' vehicle.
If you think that your personal auto policy is adequate protection for your business vehicles then you're betting a lot on something that will probably end up leaving you exposed. This exposure has the potential to bring law suits against you that can threaten your business' existence. Make sure you are adequately and correctly coverage.
Commercial Property
Most of you own property that helps you conduct business. It might be the building you work in or the special tools on the job site. Business owners invest a lot of money in property to further their goals. Protection against many common perils is available for a fraction of what it would cost you to replace lost property.
A commercial property policy provides coverage against certain named perils, e.g. fire, lighting, explosion, theft, vandalism, etc... Your policy will provide coverage for Buildings, Business Personal Property (contents & inventory) or both. If you selected Replacement Cost Coverage then your policy will require that you insure your property for 80-100% of the replacement cost. This means that you shouldn't insure the property for what you think it's worth or only a portion of it. If a claim occurs and it is found that you insured your property for less than the required percentage then you may be required to pay a coinsurance penalty. Your policy will describe how this works in greater detail.
Another part of commericial property policies that often doesn't get the attention it deserves is Busines Income Coverage. This protects the business against loss of business income due to a covered loss. For example, if a restaurant has a kitchen fire and is required to close for 60 days then this coverage would pay for their lost business income.
Conclusion
Business Insurance can be very complicated. If you do not seek the proper protection then you may leave your business exposed. This is a decision that has forced many business owners to close their doors after not being able to recover from a claim. Don't let all of the time and effort you've invested in your business be exposed.
