Business insurance is one of those compulsory expenses that we all begrudge paying, never want to have to call on, but would be plain foolish to be without.

A friend of mine, ironically a very successful insurance broker, had personal health insurance coverage up to his ears. The first year he delayed the renewal, he was diagnosed with lung cancer and had to face not only a scary illness but literally hundreds of thousands of dollars in medical expenses he needn’t have had to.

But, purchasing insurance, finding an agent or broker, and understanding insurance policy language can be overwhelming.

Here in part one of business insurance basics we will discuss the different types of insurance you should be considering.

Insurance coverage falls into three categories.

1. Assets & Revenue Insurance

Building & Contents

Covers the building, contents and stock of your business against fire and other perils such as earthquake, lightning, storms, impact, malicious damage and explosion.

Burglary

Insures your business assets against burglary, and is most important for retailers or a business which maintains an unattended premises.

Business Interruption or Loss of Profits

Covers you if your business is interrupted through damage to property by fire or other insured perils. Ensures your ongoing expenses are met and anticipated net profit is maintained through a provision of cash flow.

Fidelity Guarantee

Covers losses resulting from misappropriation by employees who embezzle or steal.

Machinery Breakdown

Protects your business when mechanical and electrical plant and machinery at the work site break down.

Motor Vehicle

It is compulsory to insure all company or business vehicles for third party injury liability. Many different types of policies are available, so make sure you understand the options before making a decision.

2. Liability

General Liability Insurance

This insurance broadly covers and provides protection against the legal hassles associated with accidents, injuries and claims of negligence.

Product Liability Insurance

If you manufacture, wholesale, distribute and retail a product, this insurance protects against financial loss as a result of a product defect that can cause injury.

Professional Liability Insurance

If you provide a service to a customer, this insurance can protect against malpractice, errors, and negligence in the provision of those services to your customers. Some state governments require certain professions (e.g. physicians) to carry such a policy. Check your individual state requirements here.

Commercial Property Insurance

This covers everything related to the loss and damage of company property due to a wide variety of events such as fire, smoke, severe weather, vandalism, etc. The definition of “property” is broad, and includes lost income, business interruption, buildings, computers, company papers and money. This is definitely one you should talk to an insurance expert about to understand your specific needs.

Home-Based Business Insurance

Homeowners’ insurance policies do not generally cover home-based business losses. While you may be able to add on certain property damage riders to your policy, you may need to purchase additional policies to cover other risks, such as general and professional liability. If you are not sure, seek advice from a qualified insurance broker.

Internet Liability

This policy provides critical coverages that are normally excluded on standard liability policies. The following are examples of these coverages:

Virus damage to the computer system and databases of 3rd parties via your website or email.

Allegations of copyright infringement of website design, trade dress, logo or way of advertising.

Identity theft and invasion of privacy allegations by 3rd parties resulting from unauthorized access to confidential information on your database by outside parties.

Defamation claims resulting from your incidental hosting of chat rooms or blogs.

Any operation doing business through a website and/or communication via email is liable to being sued for any of the above situations, and too often businesspeople are learning that they are not covered by their current insurance program.

Summary

Now that’s a lot to take in for one sitting so we are going to break here and wait for next week to conclude our look at Business Insurance.

This article was written by Brian K Fitzgibbon CPA.

Brian is an experienced accountant and small business consultant. He runs his own business, lectures extensively on small business topics and has checked out and valued many hundreds of small businesses for buyers.

Brian is also the author of the highly acclaimed and invaluable
"How To Value A Business And Buy It Without Fear"
A do-it-yourself guide for first-time and experienced buyers alike.

To download a FREE Chapter from Brian's book please follow this link: "HowToValueBusiness.com"

April 18th, 2009 | Tags: business insurance, buy a business, buying a business tips, insurance | Category: articles | Subscribe to comments | Leave a comment | Trackback URL  |