Woodland Hills Business Law Blog

Protecting Your Business with the Right Insurance

Starting a business is the dream of a lifetime for many Americans. While most entrepreneurs prefer to focus on the aspects of the business that will result in profit, it’s equally important to consider what will happen in the event of an emergency, injury or even sudden death. In preparing for the “worst case scenario”, insurance coverage must be carefully considered. Selecting insurance policies can be challenging; there are dozens of options and the necessity of some will depend largely on the type of business, the number of employees (if any) and the physical location(s).

To help you get started with your planning, we’ve compiled a quick checklist of different types of insurance that all business owners should consider:

General Liability Insurance – Regardless of the type of business or where it is located (even if it is in your home office), all owners should purchase this type of insurance which provides protection if you or your employees cause bodily harm or property damage to a third party. This type of insurance can protect against a customer who brings legal action after taking a sip of hot tea that you served in the reception area or even a vendor who was injured when an item from a closet shelf fell on him during a delivery to your office.

Commercial Property Insurance – If you own an office building, or have valuable business property such as equipment, inventory or tools, you should carefully consider this option which protects your company from any damage or loss which might occur as a result of fire, theft, vandalism, etc. In assessing which policy you need, also take time to consider whether you need business interruption insurance which may protect your business from a loss of earning when you are unable to operate; this may be helpful in the aftermath of a natural disaster where your building is without power for several days.

Product Liability Insurance – If your company manufactures, distributes or retails products to consumers, you might consider purchasing this insurance which protects against financial loss suffered as a result of a product defect that causes injury to the user.

Business Owners Policy (BOP) – This type of package is essentially a bundle offering of all of the required policies that a business owner would need. This will often include property, liability, vehicle, business interruption, etc. These policies often save business owners more money than if they were to purchase each one separately.

Professional Liability Insurance – If you provide a professional service to consumers, you may consider carrying this type of coverage which provides defense and damages for improperly rendering professional services, or failure to deliver them at all. Depending on your industry, this insurance may be mandated by your state. Professional liability insurance has become quite standard among healthcare professionals, attorneys, veterinarians, pharmacists and architects.

Commercial Auto Insurance – If you have a single vehicle, or an entire fleet, that is used to carry employees, equipment or products, you should consider purchasing commercial auto insurance which protects from damages and collisions. If your employees use their own vehicles, you may have the option to purchase non-owned auto liability, which protects your business in the event that an employee has an accident but does not have sufficient coverage to pay for the damages.

Data Breach Insurance – Also known as cyber insurance, this type of policy protects against any damages incurred as a result of a hacking attack or loss of sensitive client date. Due in large part to recent high-profile data breaches where customers’ credit card numbers were compromised, one in three U.S. companies now carries this type of coverage.

Directors and Officers Liability Insurance – This type of insurance protects your board of directors and officers from any legal action resulting from their performance of duties as it relates to your company. Many investors and potential board members will require this type of policy to ensure their personal assets are not jeopardized.

Life Insurance – In a company where there are multiple shareholders, it’s not uncommon to find life insurance policies in the mix. Generally, the policy is structured in such a way that upon the passing of one of the shareholders, the remaining shareholders or the company will receive compensation so they can buy out the shares of the deceased. This can help to protect the business and ensure continuity despite the loss of one of its leaders. In small businesses, a partner may purchase a life insurance policy on a fellow partner or key employee who is crucial to the business. The reasoning behind this coverage is that in the absence of this individual, the company would suffer severely and could even lead to its closing.

If your business has employees, there are a number of other policies which you will want to consider. These include:

Workers Compensation Insurance – As the name explains, this insurance simply provides wage replacement and covers medical expenses for employees who are injured on the job. All states require this type of coverage if you have any W2 employees.

Disability Insurance – This type of employer-sponsored insurance provides income replacement to disabled employees who are unable to work and receive their regular wages. This type of coverage is only required by law in five states: California, Hawaii, New Jersey, New York, and Rhode Island.

Unemployment Insurance Tax – While you don’t have to purchase an unemployment insurance policy, any company with employees must pay unemployment insurance taxes as determined by the state. This program is designed to provide benefits to unemployed workers who have been terminated by no fault of their own (e.g. think of a company that has major cut backs and “lays off” an employee). It’s important that you consult with your state’s workforce agency for up to date information and to learn what’s required of you.

In some cases, your state may require certain insurance coverage based on your industry and the services or product provided. To ensure compliance and make sure you properly protect your business and your own personal assets, it’s important that you consult a knowledgeable business law attorney who can advise you on the best course of action.