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  • Business Insurance for Startups
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    The Basics of Business Insurance for Startups

    Business insurance exists to protect your investment in your business, along with those of your investors and co-owners. It also can help you provide financial compensation to the people who work for you, should accidents occur. Most commercial insurance coverages are optional; some, like workers compensation, are mandatory in most states. Your state government determines which are required.

    What follows is a basic insurance overview of the types of insurance policies that you should know about and consider purchasing. Every business is different; some coverages may not be applicable to the type of company you own and run.

    General Liability Insurance
    Also simply called liability insurance, this type of policy covers your business when certain claims are made against it. These may arise as the result of injuries or property damage connected with your business, or even non-physical acts like slander or libel. If your company handles personal information, data breach coverage might be something you want to consider. This type of insurance will also assist in covering the cost of your legal defense.

    Property Insurance
    This insurance covers your business’ property and physical assets, including buildings, equipment, inventory, furnishings, and computers, from loss or damage in the event of man-made disasters like theft and fire, and natural ones like tornados, hurricanes and other weather events.

    Workers’ Compensation Insurance
    Most states require that businesses carry workers’ compensation insurance for their employees. This type of insurance replaces wages and pays for medical care for employees injured while on the job in exchange for agreeing not to sue their employer. Unemployment insurance and state disability insurance are also frequently required by states.  In addition, check out this overview of worker’s compensation coverage to learn more.

    Commercial Auto Insurance
    A commercial auto policy provides coverage for you, your employees, and the vehicles you own, lease, rent or borrow—both on the road and off. Many states make this coverage a requirement. Even if it’s not mandatory, this kind of policy will provide a measure of financial protection against liabilities that may arise from incidents involving these vehicles.

    Commercial Flood Insurance
    The National Flood Insurance Program covers businesses from financial losses due to property damage caused by flooding. You still have to pay for coverage, but it’s an important financial safeguard—and it’s backed by the federal government.

    Commercial Umbrella Insurance
    Often called umbrella liability, its primary purpose is to give your business added financial protection from potentially ruinous lawsuits and accidents. It serves as a backstop to other policies, including general liability, filling potential gaps when other coverages have reached their limits. It may also protect against additional liabilities not covered by your other commercial policies.

    Management and Professional Liability Insurance
    If you operate a professional services business like a medical practice or an investment advisory practice, coverage through a professional liability insurance policy can help shield you from losses (both legal damages and defense costs) resulting from acts, errors and omissions in the performance of your professional duties.

    Similarly, management insurance would cover your business from lawsuits that arise in connection with your organization’s management practices. These types of lawsuits are sometimes not covered under a general liability policy. It can be complex determining the coverage appropriate for your business. An insurance professional experienced in working with others in your field can help you determine what additional levels of coverage your business may need.

    Business Income Insurance, also known as Business Interruption or Continuation Insurance
    If unexpected events cause your operations to be suspended, this type of insurance would help you replace the loss of business income you incur, to help you meet your continuing financial obligations such as rent or payroll.

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    Game Plan

    • Advice from an insurance expert with business insurance expertise is critical. Have a trusted insurance professional? Get him or her to walk you through the basics of business insurance and help you understand the right coverages for your business. Don’t have one? Get a few recommendations from your business network, and “interview” insurance professionals to find someone with the expertise you need.
    • The U.S. Small Business Association (SBA) offers a lot of helpful information on their website, including “Five Tips for Buying Business Insurance” and an overview article on business insurance.
    • Another good general resource for information on business insurance is the National Federation of Independent Business (NFIB).
    • To investigate an insurance company before you purchase coverage, use the National Association of Insurance Commissioners’ (NAIC) website. You can access key information, including closed insurance complaints and financial data.
    • The law surrounding workers’ compensation insurance for your employees can be particularly thorny. You may want to consult a lawyer about how to structure this coverage for your business. You should also contact your state’s Department of Labor to find out your coverage requirements.
    • Be sure to keep detailed records of your policies on hand. And whatever coverages you choose, know their ins and outs thoroughly so you’ll know what to document should incidents occur.