Risky Business: Without Insurance, Everything’s Up for Grabs
Successful business owners large and small – local, regional, national and international – know disaster can strike at a moment’s notice to place your livelihood in peril. Consequently, it is customary for companies to carry the proper types and levels of insurance and coverage to mitigate unforeseen risks.
No matter how tempting it might be to cut costs by forgoing insurance, business experts such as the Small Business Administration strongly recommend maintaining a business insurance policy to guard against an employee getting injured on the job, a natural disaster that destroys property or a client suing over a breach of contract.
“Plus, you want to make sure you protect your income,” said Mike Nelson, associate vice president of commercial lines with Farm Bureau Insurance. “If a fire destroys your building and you’ve protected the contents, that’s good. But what about the lost income from being able to service your clients? You have to consider that as well.”
It’s important to insure your business and personal assets. Here are some reasons why your business needs insurance.
It’s the Law
Failure to carry legally required coverage such as workers compensation could result in fines, civil or criminal penalties, exclusion from public contracts and cease and desist orders — all of which could cost you far more than the price of an insurance policy.
Protection Against Lawsuits
One accident, broken contract or disgruntled employee could be all it takes to drain your financial reserves. Rather than worry about what could happen, liability insurance can give you peace of mind and allow you to concentrate on operating a successful business.
Pete Kuhnmuench, executive director of the Insurance Institute of Michigan, said the more recent risks of terrorism, data breach or sexual misconduct in the workplace are potential minefields and real-time scenarios that business owners to protect themselves against.
“Instances of cybercrimes and the disclosure of personal information are a couple of new risks that businesses must now protect against,” Kuhnmuench said.
Prevent Disruption in Service
What happens to your business in the event of an earthquake or flood? P&C insurance covers loss of property — buildings, equipment, etc. — but what about the money you lose when your business is closed?
Business Owner Policy (BOP) insurance can protect against a loss of income by having the insurer pay you the income your company would have made while it was out of action, assuming it’s due to a covered loss. BOP insurance also compensates for normal operation expenses, including rent and utilities for example, of which you would have otherwise incurred.
The Credibility Edge
Business insurance shows your prospective clients and customers that you’re a safe bet. That’s the reason many home-service companies brand “licensed, bonded and insured,” on their trucks and signage. It builds trust: the currency of a modern-day economy.
“Acts of God”
In insurance language, an “Act of God” is any accident or event not caused by human hands. Floods, tornadoes, hurricanes and fires caused by lightning all qualify. Two types of property and casualty insurance protect against such loss: all-risk and peril-specific.
All-risk policies cover events except for those expressly mentioned. Peril-specific policies list risks and cover fire, floods and others.
Safeguard Human Assets
What happens if a heart attack, serious accident or some other unfortunate circumstance puts you out of work for weeks, months or even years? Company-owned life and disability insurance coverage provide payments to cover the loss of income. In the event of your death or disability, it provides funds for the purchase of your interest under a buy-sell agreement.
Attract and Retain Employees
Having insurance isn’t just about protecting your business in scenarios of doom and gloom. It can have the positive benefit of attracting and retaining qualified employees. Second to salary, job seekers look for benefits packages that include life, health, disability and long-term care insurance.
Contracts May Require It
If you rent or lease your business facility, you may need to carry insurance if the landlord’s policy doesn’t cover it. If you borrow money to finance buildings, equipment or operations, the loan agreement will likely contain an insurance requirement.
No business owner can predict what might happen in the future. It would be excellent if natural disasters, injuries on the job or lawsuits were always predictable, but no one can guarantee a timetable for these things.
With the proper business insurance, small business owners can achieve peace of mind and focus their attention on what they do best while helping to enable a profitable and personally rewarding business for years to come.