By Terence R. Collins
Business owners work hard to grow their enterprises, investing countless hours, intense labor and careful attention to assure success. Yet many overlook one of the most basic components in securing their business' long-term viability: adequate, appropriate business insurance.
When it comes to insurance, business owners make some common, potentially terminal, mistakes that may be remedied easily with a little knowledge and guidance.
Setting limits too low. Business owners often don't understand that once you pay for an initial policy, extra coverage costs only slightly more. In some cases, you can actually double your limits for only 10 percent more in premiums.
Not reading policies. Insurance policies can be intimidating, containing as much legal jargon as virtually any business contract you'll ever see. If you don't want to read or cannot understand the policy, ask an attorney or financial adviser who is well-versed in insurance. And do it before you purchase it. Afterwards, it's too late.
Misunderstanding duties to defend or indemnify. Every business owner's policy addresses these two issues, often in different ways. When purchasing a policy, you need to know whether your insurer will defend you if you get sued. You also need to know whether your insurer will pay--and to what limit--if there is a judgment against you.
Buying the wrong type of insurance. Casualty and liability are the two basic types of insurance that virtually all business owners need. Casualty will cover a business's own losses arising from sudden, unexpected events, such as an accident, and liability will protect you from the losses of others who claim their loss was your fault. Most business owner policies will provide both casualty and liability coverage, but you need to understand the variables within those two categories. Some provide pollution coverage or protection from advertising injury or completed contracts; some don't.
Eighty percent of businesses will find that business owner policies cover their needs sufficiently, but if you have a specialty business of some kind, your needs may differ. Also, if your business puts out products in any way--as a designer, manufacturer, distributor, retailer, etc.--you will need product liability insurance as well.
Overlooking business interruption insurance. If something happens to your business--a flood or fire, for example--you may have insurance to rebuild your business, but if the business has no income in the meantime, you may have to shut down permanently anyway. Business interruption insurance can cover overhead and other expenses while your business is out of commission.
With all the variables in industries, businesses and policies, your best bet to avoid insurance mistakes is to get help from a knowledgeable expert. Many trade associations offer advice and even insurance policies especially suited for their industries. You can also talk to a reputable insurance agency--one that your business counterparts or competitors use. And if you're in a specialty business, seek a specialty agent. Finally, look at ratings. Companies, like Standard & Poore's and A.M. Best, among others, assess the financial strength of insurance companies and their ability to pay. Much of the information is available online.
It's important to take your time in choosing insurance companies and policies. Approach the decision with the same prudence and thoroughness you would employ if you were borrowing money. Your business may be one-of-a-kind, but just like the seven million other small businesses in the United States, one lawsuit or disaster could mean the end. Having the right business insurance can make all the difference.
Originally published in The Business News.
Terence R. Collins is an attorney with Johns, Flaherty & Collins, SC, (http://www.johnsflaherty.com), a full-service law firm based in La Crosse, Wis. According to the Martindale-Hubbell Law Directory, Johns, Flaherty & Collins, SC, has more top-rated lawyers than any other La Crosse law firm.
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