Understanding Business Insurance
(First in a series)
Few things can be more confusing to business owners than understanding what type and how much insurance coverage they need. Everyone knows that insurance coverage is designed to protect against a financial loss or hardship. What people may not know is that every business, business owner, and/or industry has its own insurance coverage needs. The reader should consult an insurance advisor before adding or changing insurance policies.
This five-part series will help explain several different types of policies, what each policy covers, and why each policy is important to business owners, their clients, customers, and employees. This discussion will be limited to addressing the needs of business owners and not cover insurance for personal assets, life, disability, or health.
The question of “how much insurance do I need” is a very real one. The most common response from lawyers and/or insurance agents is “How much can you afford?” Perhaps a better answer is to determine what the potential loss could be in the event of a catastrophic claim and compare that loss with the risk tolerance of the business owner and the cost of acquiring the additional insurance to cover the potential loss. A business selling arts & craft supplies would have a much different insurance package than one selling outdoor gas grills due to potential customer lawsuits and product liability. Your insurance advisor should help you determine the optimum level for your risk tolerance, financial position, and industry.
The foundation of any basic insurance policy is property, liability and umbrella. These main policies are known as a Business Owners Package (BOP). In addition to the BOP, business owners can purchase other add-on policies, some of which are required by law. Examples include Workers Compensation, Employment Practices Liability Insurance (EPLI), Professional Liability, Commercial Auto Liability, Garage Liability, Garage Keepers, and Surety Bonds.
The upcoming installment of this series will focus on the most basic insurance policy a small business owner should have, the Business Owners Package.
Jeff Heybruck is the owner of Lucrum Consulting, Inc. which provides part-time CFO and Controller level accounting services to Charlotte area businesses. Jeff can be reached at firstname.lastname@example.org, on Facebook at facebook.com/LucrumConsulting, or www.lucrumconsuting.net.