Entrepreneurs are risk-takers. Rather than accepting the comfort of employment and a regular paycheck, an entrepreneur will live with extended periods of uncertainty over whether any revenue will come into the new small business before it builds sufficient momentum to pay a regular salary.
Entrepreneurs may be risk-tolerant, but an entrepreneur who develops an intelligent business plan will prepare for risks and budget for insurance to protect against damages and liabilities that could overwhelm the efforts that are required to create a viable long-term business. Small business consultants generally recommend the following five insurance coverages for all new and growing businesses.
- General, Professional, and Business Property Insurance. Nearly a third of all small business have been sued, and two-thirds of those small businesses have suffered financial losses as a result of the lawsuit. General liability insurance will protect a small business against bodily injury and property damages that the business might unintentionally inflict on a third party. An insurance carrier may also be able to bundle general liability insurance with small business coverage for professional liability and business property A good insurance broker will be able to explain these different coverages and their purposes.
- Workers’ Compensation. If a small business has employees, various state laws will likely require that business to carry workers’ compensation insurance. The amounts of insurance that a business is required to carry will vary from state to state, and according to the nature of the tasks that the business’s employees are performing. A business that attempts to avoid workers’ compensation insurance requirements by using only contractors can find itself in violation of laws and regulations if those contractors are treated like employees. Ultimately, this insurance will protect your business in the event an employee or a person who is deemed to be an employee is injured on the job, while also providing income to employees who are unable to work due to the injury.
- Business Use of Vehicles. Some personal auto insurance policies have exclusions for damages that occur in business-related accidents. Small business owners should talk to their brokers to determine if their personal policies have these exclusions and, if the personal vehicle is used for business purposes, the owner should procure separate business vehicle use coverage.
- Home or Renter’s Insurance. Similarly, losses that occur to a business that is run out of a home office might not be covered by the homeowner’s personal property insurance, particularly if the house is used for storage of large amounts of business supplies or inventory. A business use rider to a personal homeowner’s insurance policy may be available for startups that are managed from a home office.
- Cyber Policy Insurance. Of all the coverages that a small business owner might consider, cyber policy insurance is often the most overlooked. Small business owners might mistakenly believe that their operations are too small or that they do not store or maintain sufficient amounts of valuable information to be targets of cyberattackers. Small businesses, however, face as high a risk, or even a greater risk of a data breach than larger businesses, often because they do not or cannot afford to implement the technology protections that large businesses invest in. A small business can face devastating losses from a cyberattack, including expenses relating to lengthy business interruptions, rebuilding electronic systems and overhauling security procedures, and granting concessions to customers and clients whose personal and financial data has been compromised during a cyberattack. For many small businesses that experience a cyberattack, cyber policy insurance can be the difference between continuing as a going concern and shutting down or filing for bankruptcy.
Small businesses that are on the fence over whether to procure cyber policy insurance should perform the same type of cost-benefit analysis that they perform for other major business decisions. The likelihood that a small business will experience a cyberattack is approaching fifty per cent. Given this likelihood, the benefit of a good cyber insurance policy will more than justify its cost.