Insuring Your Office and Equipment

Life is full of surprises: some good, some bad. A tornado may drop a bag of money on your driveway, although it's more likely to drop a tree limb on your roof. Such unpleasant events — wind or storm damage to your house or personal property, legal liability to others injured in an auto accident, or expenses from needed medical treatments — are risks that we often choose to insure ourselves against. By paying an insurance premium, you can avoid most of the economic impact (known as a "loss" in the insurance industry) of such unfortunate events.

When you cut through the mumbo jumbo of any insurance policy, you basically have this: In exchange for premium payments, one party (the insurance company) promises to pay to another party (the insured) a specified sum of money upon the happening of a covered economic loss.

A wind storm uproots a tree on your property, which falls on your house, causing $2,000 damage. If you have a homeowners policy, the insurance company — which has agreed to bear the economic consequences of such a risk — will pay you the $2,000, less any deductible amount (the share that you must pay).

As a business owner, you're going to have to weigh the cost of insuring against a variety of risks against the economic impact of an uninsured loss. Insurance premiums can make a substantial dent in any business's budget. How do you obtain the right coverage at the right price without spending a lot of time and money on research? We suggest the following process:

• Learn why insurance is important to your business. Insurance takes on a new dimension of importance when you go into business. Actually, the most important coverage that you'll purchase will probably be to insulate you from liabilities associated with what you — or your employee — might do to someone else, rather than to insulate against something happening to you.
• Determine which types of insurance you need. To avoid spending money on coverage you don't need, we suggest that you review the various types of insurance customarily available to small businesses. Then evaluate which of these types of coverage you can, and cannot, live without.
• Determine how much protection you need. Once you determine that you need a particular type of insurance, you've only just begun. You must next accurately assess how much insurance you need. Carrying too little insurance leaves you vulnerable and may even violate state or federal laws. On the other hand, paying $500 a year for theft insurance on a vehicle worth only $1,000 will bleed cash from your business and get you very little protection in return. Be sure to get as much coverage as you need, but not a penny more.
• Explore alternatives to insurance. In some cases, you may have to think about ways to insulate yourself against loss without buying insurance. For example, your carrier may be unwilling to insure you because of high risks. Or the premiums may be so high that it's not a viable option. In other cases, you can save on your insurance premiums by taking certain actions to cut your risks. For example, if you install burglar alarms, your property insurance premiums should decrease because your risk of robbery or vandalism decreases.