Buying Insurance for Your Business

As a new business owner, you'll need to purchase insurance coverage appropriate to your business. First, you need to identify what your business insurance needs are. The best way to do that is by talking to an insurance agent.

You and your insurance agent can discuss the best way to get the coverage you need, at the lowest cost. Keeping your cost low is important at the outset of your business, since there will probably be many cash demands and few sources of cash inflow. Another way to keep the cost of insurance low is to purchase it through group plans that are often available through trade associations or other similar business organizations.

Below is an overview of the types of insurance that your business may need, and some of the issues you may have to address.

Disability and business interruption insurance. Disability insurance provides benefits in the event of partial or complete disability. There are many factors involved in disability policies, such as the length of coverage (does the policy cover permanent disabilities as well as temporary ones?), whether the policy is renewable, and how long the waiting period is before the benefits begin. You should discuss your need for disability insurance coverage with your financial advisor and your insurance agent.

A related form of insurance is business interruption insurance. This type of policy replaces lost income if an event, such as a fire or an incapacitating illness or injury, takes place. These policies can be expensive, and they frequently measure the size of the benefit by the business's historical income levels.

General liability coverage. General liability coverage is the basic coverage that you have on your business premises. It insures against employees, clients, and other visitors getting injured while at your business site. If you are working out of your home, make certain that your homeowner's policy will cover business claims. If it doesn't, then talk to your agent about obtaining a policy or adding a rider to your existing homeowner's policy.

Health insurance. Health insurance is often cited by small business owners as among their greatest concerns because it's so expensive to obtain individually. A lot of new small business owners come from the corporate world where health insurance purchased at group rates was relatively inexpensive. But health insurance, purchased individually, is another matter. In fact, by some estimates, you will have to earn as a small business owner 140 percent of what you earned for a corporation in order to replace all of your benefits, and one of the main reasons is the cost difference in purchasing health insurance on your own. Discuss the options available to you with your insurance agent and ask other small business owners what they do about their health insurance.

Did You Know? Did you know that some states have laws that create small business purchasing alliances, which provide a means for small business owners to pool their resources in order to purchase health insurance at group rates? Also, check with trade or business associations in your field. Some of them offer health insurance at rates below what you can get by yourself.

Life insurance. Life insurance is paid upon the loss of the life of the insured. If your business relies on a partner, owner, or employee, you can take out insurance on that person to protect your business in the event of that person's death. Your attorney, accountant, and insurance agent can advise you on your life insurance needs.

Professional liability insurance (malpractice). Malpractice insurance protects you against claims resulting from professional services rendered by you to your clients. If you provide professional services, you are probably aware of the need for this type of insurance. If you need malpractice insurance, local chapters of professional organizations can usually recommend providers. For example, if you are an attorney and need malpractice insurance, the local bar association should be able to provide a list of carriers in the area.

Product liability insurance. Product liability insurance protects you against losses from injuries sustained by products produced by you. If you produce products that can possibly injure someone, even if that possibility is remote, you should consider obtaining product liability insurance. If you think that you may need this type of insurance for your business, talk to your attorney and insurance agent.