If you own a small business, you know the importance of maintaining its financial stability. Everything from managing cash flow to keeping current with tax liabilities is crucial to ensure you’re able to keep your company profitable and in compliance with the law.
But even businesses with pristine balance sheets can be impacted by events outside their owners’
control. Accidents, natural disasters, lawsuits and cybercrime are just a handful of risks that threaten to undermine the financial health of today’s small businesses. That’s why it’s imperative that the entrepreneurs running them have proper protections in place.
If it’s been a while since you’ve reviewed your company’s insurance coverage, putting it off longer could leave your business susceptible to significant risk. Fortunately, there are steps you can take today to safeguard your company and your livelihood. Here is a primer to get you started.
First, understand the basics of business insurance -
Different types of insurance can provide different protections for your business. Some of the more
common types include:
• General liability: This type of insurance provides coverage for legal issues ranging from injuries
on your property to claims of libel or slander.
• Product liability: Product liability insurance can provide protection against claims relating to
defects in the products you manufacture or sell. The level of coverage you would need to cover
your risks will depend on the types of products you supply and their potential to do harm.
• Professional liability: Professional liability coverage pertains to firms that provide services. This
coverage, often referred to as “errors and omissions insurance,” protects against mistakes that
could occur.
• Commercial property insurance: Just as you need insurance on your home, the same is true for
your business property, even if you rent your business space. This insurance can protect the
valuable assets in your company from risks such as fire, flood damage, vandalism or theft.
Specialized types of insurance -
Beyond the basics, there are specialized types of insurance that can provide coverage for the unique aspects of your business. Consider whether any of these apply to your situation:
• Business insurance for the home1: If you run your business out of your home, it is likely you’re
your standard homeowner’s insurance will not cover risks associated with the business. Check
your policy to see if separate or additional coverage is needed.
• Worker’s compensation: If you have employees, you will likely need to have a worker’s
compensation policy in place to cover injuries or deaths that could occur while doing business.
• Auto insurance: Vehicles specifically owned by the company require full insurance. Employees
using their own cars can be covered by personal insurance policies in most cases but be sure to
check with your insurer. You may need additional insurance to protect the company in case one
of your employees has insufficient coverage.
• Business interruption insurance: A natural disaster or other catastrophic event could disrupt your
business operation for days, weeks or even months. This form of coverage can compensate
businesses for income lost during such periods. Generally, it is most suitable for a business that
operates from a specific location, such as a retail store.
• Cyber or data breach coverage: If sensitive information about employees, vendors or clients is
stored within your computers and other devices, there may be a financial impact if your business
is subject to a cyber-attack. This insurance can help cover costs associated with notifying
affected parties, public relations and legal action.
• Employment practices coverage: Employers can be subject to legal actions from employees and
others, including accusations of discrimination, harassment or wrongful termination. Policies are
available to protect against these costs.
• Directors’ and officers’ liability: This coverage protects individuals in positions of authority in the
company if they are sued over business decisions or actions taken.
• Life insurance: If you share ownership of the business, think about what might happen to the firm
if one of you passes away unexpectedly. Life insurance can be a key part of your company’s
succession plan, ensuring the deceased’s loved ones and the surviving partners are taken care of
financially and the business can continue to operate.
Look for solutions that are suitable -
As you can tell from the plentitude of options described above, there is no “one-size-fits-all” solution when it comes to business insurance. Working closely with financial and insurance professionals can help you assess your needs and determine an appropriate protection strategy.
1- “Types of Business Insurance.” U.S. Small Business Association, <https://www.sba.gov/managingbusiness/running-business/insurance/types-business-insurance>.
* * *
Cody Sims, CRPC, AAMS, AWMA, is a financial advisor and franchise owner with Ameriprise Financial Services, LLC. in Chattanooga, Tn. He specializes in fee-based financial planning and asset management strategies and has been in practice for 27 years. To contact him, ameripriseadvisors.com/james.e.sims, 423-648-2900, and 412 Georgia Ave., Suite 210, Chattanooga, Tn. 37403.
Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC. 2022 Ameriprise Financial, Inc. All rights reserved.