The Basics of Insurance for Small Business
By Rieva Lesonsky
2012's hurricane Sandy was a horrific reminder of what happens when there aren't business solutions in place for natural disasters. Damage from Sandy is expected to cost between $10 to 20 billion in insured losses, according to disaster modeling firm Eqecat. While you can’t avoid being in the path of a storm or other natural disaster, you can make sure your business is properly protected. Here’s how. First you need to assess what risks exist in your business, which is a three-step process, according to FEMA’s Ready.gov Risk Assessment checklist:
- Hazard identification: Assess potential hazards that could affect your business. In addition to weather-related disasters, these could include fire, hazardous materials, workplace violence and cyberattacks.
- Vulnerability assessment: What assets are at risk? People, property, equipment, the environment?
- Impact analysis: What is the possible damage? Consider casualties, property damage, lawsuits and financial loss.
Having the proper business insurance protects your company by minimizing the financial risks associated with unforeseen events and can mean the difference between losing your business completely or making a full recovery. Business insurance falls into five basic categories, and the coverage you need depends, in part, on what kind of business you own.
General liability insurance covers legal problems due to accident, injuries, and claims of negligence. These policies protect you in case you’re liable for bodily injury, property damage, medical expenses, libel, slander and the cost of defending lawsuits.
Product liability insurance covers companies that manufacture, wholesale, distribute, or retail a product and may be liable for its safety.
Professional liability insurance is also called “errors and omissions” insurance and protects your business against malpractice, errors, and negligence that may occur when providing services to your customers.
Commercial property insurance covers everything related to the loss and damage of your business’s property, as well as loss of income due to such events as fire, smoke, storms and vandalism.
Home-based business insurance is necessary if you work out of your home because homeowners' insurance policies do not generally cover home-based business losses. If you have employees, you are required by law to have Workers' Compensation Insurance, Unemployment Insurance Tax and, in some states, Disability Insurance, which requires employers to provide partial wage replacement insurance coverage to their eligible employees for non-work-related illness or injury.
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