Question: My business is registered as an LLC. Do I still need to take out insurance to protect me against business losses? For example, property damage due to fire etc.
Answer: Running a small business involves a significant investment. Business insurance protects your investment by minimizing financial risks associated with unexpected events such as a death of a partner, an injured employee, a lawsuit, or a natural disaster. Unless you are an employer, business insurance is generally not required by law, however, it is common practice to purchase enough insurance to cover your assets. If your business is an LLC or a Corporation, your personal assets are protected from business liabilities; however, you are NOT covered by losses incurred by the business itself.
The state normally determines insurance requirements for businesses. Most states require businesses with employees to pay for workers' compensation insurance, unemployment insurance, and state disability insurance. Your state may require insurance on specific business activities. For example, if you own a car or truck and use it for business purposes, you may be required to purchase commercial auto insurance. Finally, your financial lender or investors may require you to maintain life, business interruption, fire, flood or other types of insurance to protect their investments.
Here are a few types of insurance you may consider applying for:
- General Liability insurance
Business owners purchase general liability insurance to cover legal hassles due to accident, injuries and claims of negligence. These policies protect against payments as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.
- Product Liability insurance
Companies that manufacture, wholesale, distribute, and retail a product, are liable for its safety. Product liability insurance protects against financial loss as a result of a defect product that causes injury or bodily harm. The amount of insurance you should purchase depends on the products you sell or manufacture. A clothing store would have far less risk than a small appliance store, for example.
- Commercial Property insurance
Property insurance covers everything related to the loss and damage of company property due to a wide-variety of events such as fire, smoke, wind and hail storms, and vandalism. The definition of "property" is broad, and includes lost income, business interruption, buildings, computers, company papers and money.
- Home based Business Insurance
Contrary to popular belief, homeowners' insurance policies do not generally cover home-based business losses. Depending on risks to your business, you may make additions to your homeowners' policy to cover normal business risks such as property damage. However, homeowners' policies only go so far in covering home-based businesses and you may need to purchase additional policies to cover other risks, such as general and professional liability.