Self-assessment Step 4: Insurance Coverage

This is the fourth in a series of articles that examines your business operations to determine whether your business is healthy and whether you are doing everything you can to maximize your profit, run efficiently and minimize risk. The first article, which appeared in the October 2010 issue, page 18, examined the legal structure of your business. The second article, which appeared in January, page 20, reviewed business agreements. The April article, which appeared on page 20, dealt with the physical location of your business. This month, I examine whether you are properly insured.

Every time I write a check for insurance, I cringe. But without it, I’m sure I would have many sleepless nights worrying about whether an accident would financially devastate me. Make sure you have insurance in place for athe following categories to ensure maximum protection of your business:

  1. General liability insurance obligates the insurer to pay for bodily injury and property damage that results from your workmanship. The insurance also covers your legal fees in a dispute. Beware of “claims-made” policies; if you stop the coverage, none of your past projects will be covered without a significant additional payment.
  2. Business insurance is necessary if you plan on having clients or customers visit your place of business. Whether you plan to hold meetings, allow customers to pick up merchandise or have members of the public enter your business for any reason, this insurance will protect you if someone is injured while on your property. This insurance will typically pay for your legal defense should you face a lawsuit as the result of a fall or other damage that occurs on your property. Some policies also cover wrongful termination and advertising liability.
  3. Personal property insurance helps protect you against loss of inventory or equipment damaged in a flood, fire or other disaster or as a result of vandalism.
  4. Business interruption insurance will help your business recover from a disaster. It will cover you for income lost during the disaster and the cost to rebuild your files. It also will pay for operating expenses that continue to accrue even though your business isn’t up and running.
  5. Workers’ compensation insurance is required if you have employees. Without workers’ comp, you’ll be responsible for any medical expenses and lost wages arising from injuries employees sustain while working for you. If an employee is permanently injured, you could be paying for his entire life. Failure to have workers’ comp insurance also can result in fines and criminal prosecution!
  6. Automobile insurance is mandatory whether your business owns one vehicle or an entire fleet. An auto-insurance policy provides coverage for liability and physical damage associated with the vehicles owned by your company. It also can cover vehicles owned by your employees and used by them in your business, such as the employee that runs to the hardware store during a project.
  7. Disability insurance will guarantee you some income should you suddenly become unable to work because of injury or illness.
  8. Life insurance provides your dependents with food, shelter and clothing after you pass away.
  9. Medical insurance is outrageously expensive, but sometimes you can reduce the cost by having a group medical plan for your company. Group policies also can provide benefits to someone who cannot get medical insurance because they have a preexisting condition.
  10. Error and omission insurance is important if you are a design/build firm because your design work may not be covered by your general-liability policy. E&O policies cover design mistakes and legal fees for your defense.

I am not an insurance agent, but I have handled many cases for clients that could have been covered by insurance had they had the proper policies in place. Check with your insurance carrier to make sure all your bases are covered. Have your insurance policies reviewed on a regular basis by an independent insurance agent to make sure you are getting the maximum coverage for your dollar and the price you are paying is reasonable.

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