In part one we covered on the need to make sure that we have sufficient insurance cover in place.

Then we looked specifically at Assets & Revenue insurance and Liability cover options.

Today we are going to finish our two part review of Business Insurance by looking at People Insurance and Special Situations cover.

People Insurance

Disability Insurance

In the U.S., it is mandatory to purchase disability insurance only if your business is in one of six locations – California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island. You can find specific inks to these state insurance divisions here.

Unemployment Insurance Tax

If you have employees you are required to pay unemployment insurance taxes as determined by your state. First you’ll need to register your business with your state’s workforce agency. The State Taxes page on Business.gov includes links to connect you with your state’s agency.

Workers Compensation

To protect employers from lawsuits resulting from workplace accidents and to provide medical care and compensation for lost income to employees hurt in workplace accidents, in almost every state, businesses are required to buy workers compensation insurance. Workers compensation insurance covers workers injured on the job, whether they’re hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses.

Personal Accident & Illness

If you are self employed you won’t be covered by workers compensation, so you need to cover yourself for accident and sickness insurance through a private insurer.

There are several types of life insurance. Some are investment-type funds where you contribute over a certain time and get back your investment plus interest earnings at the maturity date. Others are designed to cover risk – things that could happen to you.

Income protection or disability insurance – covers part of your normal income if you are prevented from working through sickness or accident.

Trauma insurance – provides a lump sum when you are diagnosed with one of several specified life threatening illnesses.

Term life insurance or whole of life cover – provides your dependents with a lump sum if you die.

Total and permanent disability insurance – provides a lump sum only if you are totally and permanently disabled before retirement.

Key Person

The loss of a key person can be a major blow to a small business. More so if that person is the key contact for customers and suppliers and the management of the business.

Loss of the key person may also make the running of the business less efficient and result in a loss of capital.

Losses caused by the death of a key employee are insurable. Such policies will compensate the business against significant losses that result from that person’s death or disability. The amount and cost of insurance needed for a particular business depends on the situation and the age, health and role of the key employee.

Key employee life insurance pays a death benefit to the company if the key employee dies. The policy is normally owned by the company, which pays the premiums and is the beneficiary.

Annuities

In its most general sense, an annuity is an agreement for one person or organization to pay another a stream or series of payments.

This is normally put in place to replace income when you retire from the business.

Usually the term annuity relates to a contract between you and a life insurance company, but a charity or a trust can just as easily take the place of the insurance company.

Health Insurance

There are essentially two types of health insurance plans: indemnity plans (fee-for services) or managed care plans. The differences include the choice of providers, out-of-pocket costs for covered services and how bills are paid. There is no one best plan for everyone. Some plans are better than others for you or your family’s health care needs, but no one plan will pay for all the costs associated with your medical care.

Special Situations

Some businesses have unique insurance needs. In most instances a good insurance professional will identify these situations. Basic policy types may not cover or, in fact, may exclude coverage for certain operations. Or, there may be certain laws or regulations requiring a specialized type of insurance. In considering the types of policies applicable to your business consider the following.

Crop Insurance

There are two kinds of crop insurance: crop-hail, which is provided by the private sector, and multiple peril, an all-risk coverage underwritten by the private sector and the federal government and serviced mostly by the private sector. Crop-hail insures against loss of the value of a crop as a result of damage by hail. Multiple peril insurance covers loss of crop value as a result of all types of natural disasters, including drought, excessive moisture and unusually hot weather.

International Operations

If your company does business overseas or has projects overseas, most traditional policies will only cover claims brought in the United States. An International Operations policy can extend that cover as required.

Valuable Papers

Certain businesses such as design firms, law offices, investment firms or accounting firms handle and produce critical documents. To insure against possible claims if these papers are ever lost, a special Valuable Papers policy fits the bill admirably.

Marine Insurance

If your business operates water vessels that dock at United States harbors, you will need Maritime Operations coverage. This coverage will include a specialized form of workers compensation coverage that covers employee claims under the Jones Act and the Longshoremen’s Act.

Railroad Operations

Most commercial policies exclude coverage for operations taking place within a certain distance of railroad tracks or in a railroad yard. You will need to secure this coverage if your business will be operating around railroads.

Kidnap & Ransom

If your personnel travel overseas to known danger areas, this coverage may be necessary to aid and reimburse the business in case of a kidnapping.

Special Scripted Policies

Some things or operations are so unique that an insurer will write a policy specifically for that risk. If your operation owns or operates something unique ask your professional if it is covered or if it can be covered.

Summary

Talk to a number of insurance companies and brokers to discuss what is best for you. Try to get a balanced view on your needs and what is available to you.

Make sure that you contact your industry association or professional body if you have one, to find out if they can help with specific advice for you. They may also be able to arrange discounted premiums too.

Make sure you that check insurance information in your state or territory as often there are special requirements to cover local regulations and requirements.

Not something that we want to have to use or call on, but trust me if you do have to, you’ll be darned glad that you have it!

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 23rd, 2009 | Tags: business insurance, buy a business, buying a business tips, insurance | Category: articles | Subscribe to comments | Leave a comment | Trackback URL  |