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Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

Business Insurance — Are You Adequately Covered?

Let's face it; insurance is complicated! Have you ever known anyone that just sits down and reads a policy word for word, including the small print?

Thank goodness for seasoned, trustworthy insurance professionals, right?

Still, if you are a business owner, some basic knowledge about insurance products and what needs you might have (that you may not even realize you have) is valuable information for your business management toolbox before you go shopping for insurance, or worse, go without in critical areas.

Presented here are several types of insurance for you to consider. For purposes of this article, we are not talking about insurance that is in the nature of employee benefits, such as health insurance, but rather insurance that protects the business itself.

General liability - the most basic kind of insurance is general liability. It covers things such as claims for bodily injury for customers and employees (not covered by workers compensation), as well as, property damage stemming from business operations.

A classic example is when a customer takes a nosedive after tripping over the box someone left lying in the middle of the office. Or one of your pieces of equipment decides to spontaneously combust and in the process injures employees and customers, as well as the property where your business is located but rented from someone else.

General liability insurance will also typically included product liability insurance, which is insurance to protect you against harm caused by a defect in a product you sell, especially important for businesses that sell a potentially harmful product.

Professional liability - a related category to general liability is professional liability insurance, also called errors and omissions insurance (E&O). Sometimes general liability and E&O can be taken out as a single policy, but also, you might not really need it. E&O typically is needed to insure against negligence with regard to a professional service, including law, engineering, consulting, counselors, accountants, and architects.

Key man life insurance - this type of insurance is often used by business partners to insure the lives of each other, and in the event of death of one, can be used by the survivor(s) to buy out the ownership stake of the deceased.

Property insurance (PI) - this essentially is the business equivalent of homeowners' insurance. PI protects you against the cost of losses due to catastrophes such as fire, flood (including plumbing disasters), tornadoes (around these parts) and other natural disasters. If you have company-owned vehicles, you will also need automobile insurance.

Business interruption (BI) - an often overlooked but much-appreciated coverage when it's needed is BI insurance, which covers you if your business operations are affected, either as a whole or in part, should an event occur of a type covered by PI insurance, as discussed above.

BI helps pay for business expenses that continue, and even lost profits, when a business is curtailed or shut-down due to a covered loss. BI can literally be the difference between a business's life and death!

Employment practices liability insurance - if you have employees, it is vital to consider this coverage. Employment practices liability insurance typically covers damages from violations of employee protections under the Civil Rights Act. Coverages include:

  • Employment discrimination. This would include basing a hiring or firing decision on race, religion, gender, national origin, age, marital status or sexual orientation.
  • Wrongful termination. While this could be a subset of employment discrimination, it also covers violations of employment contracts.
  • Sexual harassment. Loss here occurs typically when an employer is found to have neglected to adequately investigate harassment claims, has "looked the other way", or has fostered a work environment in which sexual harassment flourished.
  • Emotional distress. Emotional distress can result from threats and bullying. As with sexual harassment, the key issue is whether this is taking place in your business and whether you, as employer, have failed to take appropriate remedial action, either proactively or in response to complaints.
  • Wage and hour violations. This insurance covers failures to comply with the Fair Labor Standards Act, including minimum wage and overtime requirements.

Chances are you have some of these vital coverages already in place, but not likely all of them that you need. Maybe it's time to do a thorough insurance evaluation and see what gaps in coverage you may have.

Which coverages you really need most, and how much protection you need in each category, depends on a number of factors. Factors such as cost (of course), risk tolerance, and what dangers in reality is your business really at risk for (and to what degree) are things to consider. Knowing what coverage is available to you is an important first step in effectively managing your risk in a way that fits your unique situation.


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