When it comes to safeguarding your business from many possible dangers, your first line of defense should be business insurance. You may put your business at great risk from the costs of a lawsuit, a judgment, or an unexpected emergency or disaster if you don’t have the appropriate insurance, or if you have too little of the insurance you need. Business insurance comes in numerous types, and some insurance policies are a must-have for nearly every business, while others you might not need. The type of insurance your business needs will be determined by the risks and assets it faces. Therefore, you should meet your lawyer to identify the coverage your particular business should have in place.
Additionally, business owners that do not have the right types and levels of coverage when purchasing business insurance make a variety of mistakes. While your lawyer can assist you in determining the appropriate coverage for your business, here are a few frequent mistakes to avoid when investing in business insurance.
1. Purchasing a policy that doesn’t offer you legal representation in the event of a lawsuit
If your firm is ever sued, the right business insurance will not only pay out if someone wins the case, but it will also hire a lawyer for you and cover your legal costs. As a result, make sure your insurance policy includes a “duty to defend” your business in the case of a lawsuit and not just simply a “duty to indemnify” or payout if a judgment is rendered against you. Even if you haven’t done anything wrong, your firm may be sued at any moment, so having legal representation can be critical to your business liability insurance strategy. One frivolous claim may destroy your company if you can’t afford to defend yourself.
2. Failure to protect against income loss
Commercial property insurance will pay to rebuild and repair your workspace if damaged in a fire, storm, or other unforeseen disasters. However, if your business is shut down for even a short period, the loss of income can be devastating. Given the risk, consider investing in business interruption insurance, also known as business income coverage. As a result of the incident, business interruption insurance reimburses your company’s income losses while covering overhead costs like rental and energy bills. During the pandemic-related shutdowns in the last year, many companies discovered the hard way exactly how crucial such coverage is. Let this be a lesson about how vital such coverage can be.
3. Failure to update your insurance coverage as your business grows
As with any other foundational business system, if your insurance coverage is not reviewed and updated as your operation grows, it may become inadequate, putting your company at risk. While it is prudent to review your insurance coverage annually, as your business evolves, you should also revisit your policies whenever your infrastructure, assets, or personnel changes. While a variety of circumstances may necessitate an audit of your insurance coverage, the following are some key changes that require you to review your company insurance immediately:
- Relocating or remodeling your office
- Employing new workers
- Launching a new product or service
- Investing in new cars
- Changing your top executives
4. Failure to protect yourself against employee lawsuits
While you certainly don’t want to think about one of your workers (or independent contractors) suing you, they are one of the most probable causes of a lawsuit. In fact, nearly one in every five small businesses will get sued by a team member. In addition to having clear employment agreements and formal recruiting and firing procedures in place, you should invest in employment-practices insurance for your company. This coverage protects your business against lawsuits filed by both workers and contractors, and the right coverage will not only payout in the case of a judgment against you but will also cover your legal fees.
Reliance on homeowners insurance to cover a home-based company
It’s a frequent misconception that your homeowner’s insurance will cover losses and liabilities incurred by your home-based company. Your business property, including equipment and structures utilized for business, is not covered by your homeowner’s insurance. Your homeowner’s policy also doesn’t cover business-related liabilities, such as slip and fall accidents. However, you may add home-based business coverage to your homeowner’s insurance policy. But if you have a home-based business, you need both homeowner and business insurance. You’ll need property, general liability, and business interruption insurance, all of which are available as part of a standard business owner’s policy.
Coverage That Is Right For Your Business
Because each organization has unique risks and assets, there is no way to determine precisely what coverage your business needs without conducting an assessment. Before you meet with an insurance agent, schedule an insurance audit with your lawyer. Your lawyer can help you assess the specific risks your business encounters at each stage of growth to identify the kind of insurance you need and the appropriate amount of coverage to protect your business assets both now and in the future.
This article is a service of Greg Gordillo, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Schedule your LIFT Session today!