The Business of Protecting Business Clients

Business owners face enough obstacles these days: Credit still isn’t easy for startups or expansions, and cautious consumers continue to pinch pennies. But even when cash flow isn’t what a business owner would hope it to be, entrepreneurs can’t afford to neglect properly insuring their ventures.

This is increasingly important in a climate where a customer can sue a sandwich shop because the “foot-long” sandwiches it offers measure only 11 inches. The overwhelming majority of business lawsuits, of course, involve much more serious and worthwhile topics – malpractice, product failure, and discrimination, among others.

But any claim could affect a company’s operations. You’ll do your business clients a great service by informing them of the risks of neglecting business insurance.

Required coverage

Your clients might not have the notoriety of a Fortune 500 company, but that doesn’t mean they can’t (or won’t) be sued. It only takes one disgruntled employee or client to raise an issue. Alert your clients of these business insurance options, recommended by the Insurance Information Institute (III), for their protection. There are four main coverage types that should be standard for any business:

• Property Insurance: Business property insurance protects the physical structure of a business from covered perils such as theft, wind, and fire, among others. It also covers any inventory, equipment, and machinery stored there.
• Liability Insurance: Many forms of liability insurance are important for businesses, but general liability is essential for all.  This helps with business-related problems such as defective products, errors in service, or hazardous environments.
• Workers Compensation Insurance: Every state but Texas requires businesses with more than a certain number of employees (usually only 3 to 5) to have a minimum amount of workers comp insurance. Workers comp provides medical care and a portion of lost wages to those employees injured on the job, regardless of fault.
• Business Auto Insurance: If a business uses a company car, state law requires it to purchase a minimum amount of auto insurance for that car.

Business owners policy

A Business Owners Policy, or BOP, usually provides the answer for any small to medium business insurance needs. It includes the four main coverage types above (although sometimes companies purchase workers comp separately). With a BOP, you also have income insurance, which can help replace lost income while a venture closed during or after a covered disaster. Eligibility and premiums for BOPs are determined using a myriad of factors such as business type, size, offsite activity, and financial stability.

Additional protection options

Every business is different, and so are the legal battles that each faces. Encourage your clients to take a close look into what they do and where their vulnerabilities could lie. Optional add-ons that might prove useful include:

• Professional Liability: This is the coverage that takes over when customers, clients, or patients sue businesses for negligence, malpractice, or basic failure to properly perform their service. Professional offenses could involve poor recommendations, design, or physical care. The policy can help the business pay legal costs and the final judgment, up to policy limits.
• Employment Practices Liability: When employees sue, this kind of coverage takes effect, and again helps with legal costs and the final judgment, up to policy limits.
• Directors and Officers Liability: If someone sues the directors or managers of a company for mismanagement, this coverage can help.
• Umbrella Policies: Umbrella liability can protect against higher losses and raise limits for liability and property claims.

Even if your clients only have very small, home-based businesses, make sure they understand that they could still be at risk. Standard homeowners insurance policies typically do not cover commercial activity in the home. Advise clients to purchase property and liability insurance endorsements on their existing homeowners insurance policies to cover the business or to buy separate in-home business policies, which have higher policy limits.

When one party in a small business lawsuit doesn’t have insurance, no one wins. Educate your clients about the dangers of going without business insurance.

Katherine Wood writes about insurance, technology, yoga, and other subjects. She graduated from Davidson College with a bachelor’s in English. She is a main contributor to the Homeowners Blog.