Upsize Stages: Managing and in
UPSIZE STAGES: THE EARLY YEARS
07 :: Managing and insuring risk.
How much insurance?
Weigh risks against
costs to decide
Assuming your small business is renting property, has some bank debt, and has a couple of employees, there is a checklist of insurance coverages it will be required to purchase right out of the gate.
There?s property insurance to cover the assets of the business. You?ll want to insure at replacement cost so if something happens you?ll be able to replace what is lost. Don?t purchase the lowest deductible ? save on premiums and purchase a higher deductible.
Another important part of insuring against your risk is business income coverage. Purchased properly, that will cover not only lost profits but continuing expenses as well. Everyone needs business income coverage, and insurance observers say not having it is one of the primary reasons for small-business failures after a loss.
Liability coverage is also key in case a third party files a claim against you for injuries or damages inflicted by your firm. Landlords or bankers will probably require you to cover $1 million per occurrence and $2 million for an annual aggregate. That?s probably an absolute minimum. If you started the company raising $100 million, a $1 million policy isn?t going to provide much protection.
Crime insurance will protect against employees embezzling money, something that happens more frequently than most business owners would like to admit. If you have a retirement plan, the federal government requires you to have crime insurance of at least 10 percent of the plan?s assets up to a maximum of $500,000. Embezzlement can cause business failures ? unless you take care of what is under your control.
Every business person also needs automobile insurance, even if the company doesn?t own any vehicles. Employees ? and the business owner ? probably will be using their own vehicles for business purposes if that is the case. Hired and non-owned auto coverage will cover the liability of renting cars at the airport and of employees using their own vehicles for business.
The last basic requirement is workers compensation insurance. Every business with employees is required to purchase it. And employers should include themselves and any stockholders because workers compensation is one of the best disability policies out there. Companies heavy on desk workers will cost less to insure than those with truck drivers or construction workers.
A business that purchases coverages at a minimum level in all of these areas can increase their coverage in increments of $1 million by buying an umbrella policy, the most cost effective way to increase your coverage.
Now, these are just the basics. There will be additional insurance expenses based on the type of business you start and the inherent risk involved. For example, some companies insure against the loss of key people. That can be done through life insurance. But it?s tricky determining whether that type of strategy would be worth the expense.
Also, ever-changing laws and regulations make this complicated and brokers are available to walk you through them and provide you with risk assessments.
Regardless of the business, it?s vital to make good insurance decisions. This is another area where entrepreneurs likely want to consider seeking advice from a certified public accountant, an insurance broker or an independent insurance consultant. Decisions made in these areas can save businesses from disaster.
