Are You Protected?
7 things entrepreneurs need to know about insurance.
Keith Twitchell spent 16 years running his own business before becoming president of the Committee for a Better New Orleans. He has observed, supported and participated in entrepreneurial ventures at the street, neighborhood, nonprofit, micro- and macro-business levels.
Entrepreneurism is exciting. Insurance, not so much. But if you’re going to launch any kind of enterprise, it’s crucial to understand your insurance obligations and needs. So prop your eyelids open and stick with me as I cover the basics of entrepreneurial insurance.
Start before you start. “If you have started a business and are now looking at insurance, you’re doing it backwards,” explains Tommy McMahon, president of Eustis Insurance. “You have insurance requirements as soon as you sign your first lease or contract.”
Virtually any business lease requires the lessee to have general liability insurance, including property, and possibly flood insurance. If you have leased an entire building, you may have to insure the building. McMahon advises going over any lease carefully with an attorney, a CPA and an insurance agent to make sure you have not left yourself at any kind of risk.
Similarly, many contracts may include insurance clauses. These could range from performance bonds to environmental protection requirements to cyber-coverage.
Understand the bias. “Most contracts are written by the party putting out the contract, and are written to that party’s favor,” noted McMahon. “Review all contracts carefully, and see if you can strike out anything that doesn’t apply.
There’s something for everyone and everything. “Every little finger of the economy has specialized coverages,” McMahon points out, so regardless of what type of business you are in, there are likely insurance products related to it.
Employees = Liability. Another key insurance trigger is hiring your first employee. The law requires any type of operation with employees to carry worker’s compensation insurance. As a business owner, you also may be liable for the actions of your employees while they are working for you. This could include an auto accident caused by someone on your staff while on the job. While you obviously need to maintain insurance for all vehicles your business may own – as well as boats, planes, helicopters, etc. – McMahon also advises getting insurance to cover accidents caused by vehicles you don’t own but that are used in the course of doing business.
Don’t be interrupted. Another important type to consider is business interruption insurance. This assures a business can maintain a revenue stream in the event of a major event, like a fire or flood, that prevents business from being conducted for an extended period of time. Given the susceptibility of our region to hurricanes, this can truly save a business.
Rainy days call for an umbrella. For each type of insurance you obtain, it’s essential that the amount of coverage protects you adequately. Especially for larger enterprises, McMahon suggests entrepreneurs obtain an umbrella policy on top of any basic policies to provide a wider coverage and go over and above the limits of other policies.
Get personal. Finally, entrepreneurs should consider getting additional life insurance on themselves as part of protecting their enterprises.
“When people start investing in you, life insurance is you protecting their investment,” adds Meredith Scott, an insurance producer for New York Life. “This can be especially important when the investors are family members.”
In fact, some investors may require entrepreneurs to have life insurance. Even if your investors do not, having a policy establishes you as being a savvy, prepared business person. There are several different types of life insurance, and you can often tailor the product to your needs as a business owner.
Business partners may also want to have life insurance coverage on each other; and you may want to consider insuring key members of your staff whose contributions would be extremely difficult to replace.
Insurance may be boring, but in a way, that’s the point: if you encounter some kind of major problem in your business life, you’ll have enough excitement without having to worry about financial losses too.