Six Business Insurances For the Unexpected

Business Insurances

Businesses can be risky propositions. There are all kinds of things that can go wrong and sink a fledgling business without warning: natural disasters, man-made calamities, or simply the unforeseen consequences of everyday business activities.

It’s not just startups that need to think about risk management. Even huge corporations have seen their share of famous brands go under because they weren’t prepared for some unanticipated catastrophe. Business interruption insurance is one of the ways to stay covered in the event of a disaster.

Let’s take a look at six different types of business insurance you might want to consider before you launch your venture.

1. Property insurance

If your business has inventory, real estate, or equipment you need to protect, you’ll need to purchase property insurance. If your inventory is damaged in a fire or if your real estate is damaged by an earthquake, you’ll need this insurance to get reimbursed for the costs of repairing or replacing the property.

This type of business insurance is important because most other types of business insurance won’t cover the cost of replacing inventory or repairing real estate; they’ll only cover the cost of repairing an item or repairing the building, depending on the type of business insurance.

2. Business Interruption Service

While property insurance covers the physical items of your business, business interruption service helps fill the gap of lost income. If your business is forced to shut down because of problems such as fire, wind, lightning, falling objects, or theft, the lost revenue is covered by business interruption insurance.

Contingent insurance is similar to business interruption insurance. If a key partner of your business, such as a supplier, is impacted by a similar situation (fire, wind, etc.), contingent insurance steps in. Any revenue losses to your business caused by the damage to your supplier’s business will be covered.

3. Computer/Information System Insurance

If your business’s computer system suffers a loss, such as a cyber attack, theft, or natural disaster, this type of insurance covers the costs of repairing the computer system.

This type of insurance is important because your business can’t function without a computer system. The amount of computer/information system business insurance you purchase should be equal to the amount of the loss for which you’re financially responsible. For example, if you’re responsible for paying a $100,000 loss, you need to purchase $100,000 of computer system business insurance.

4. Employment Practices Liability Insurance

This type of insurance covers the costs to defend against a lawsuit alleging employee discrimination, wrongful termination, or sexual harassment. If your business is held liable for one of these lawsuits, this insurance covers the costs of defending the lawsuit. It also covers any settlements or judgments against your business.

If you don’t have this type of insurance, you could be personally responsible for any judgments or settlements against your business. For example, if a former employee wins a wrongful termination lawsuit against your business and receives $100,000 in damages, your business’s assets are probably insufficient to pay the judgment. Because you’re the owner of the business, you’re personally responsible for the $100,000 judgment.

5. Directors and Officers Liability Insurance

If you or members of your management team are directors or officers of your business, you need this insurance. This type of insurance covers the costs to defend against a lawsuit alleging breach of fiduciary duty, gross negligence, or misconduct by the directors or officers.

If your business is held liable in one of these lawsuits, this insurance covers the costs of defending the lawsuit. If a director of your business is sued for breaching fiduciary duty and the director loses the lawsuit, the director of the company is personally responsible for paying the judgment.

6. Commercial Umbrella Liability Insurance

If you don’t have general liability insurance, you need this type of business insurance. This insurance protects your business against large claims. This type of insurance typically kicks in when a claim exceeds the amount of your standard general liability insurance coverage.

Without this insurance, you’re at risk of losing all your assets if you’re held liable for a large claim against your business. If someone trips and falls at one of your company’s locations and sues your business for $10 million, your general liability insurance probably won’t cover the entire claim. You’ll likely need to pay the first $1 million of the claim with your company’s general liability insurance, and the commercial umbrella insurance will cover the remaining $9 million claim.

Business as Usual

Business insurance is a crucial part of running a small business. While many entrepreneurs know the importance of buying insurance for their businesses, not everyone knows which kinds of insurance policies are best for them. We hope we’ve helped you understand the types of insurance that are most important for small businesses.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.