Entrepreneurs put a tremendous amount of effort, time and money into getting their businesses up and running. It would be a shame if all that were lost through no fault of the owner. A fire, a lawsuit or a robbery are just some of the disasters which can wipe out a struggling small business and ruin an entrepreneur.

The risks can be covered by insurance. The kind of insurance which interests most small businesses is called property and casualty insurance. If you own the building in which you do business, loss or damage from a fire or other disaster would necessitate spending a large amount of money to repair or replace the structure. If there is a mortgage on the property, the lending institution will insist on up-to-date insurance coverage naming itself as an insured. Most mortgage financing agreements provide that the loans become immediately payable if there is major damage to the property. Your policy usually will have provisions that cover building contents as well. This means the machinery, equipment, inventories, supplies, tools, records, furniture and office equipment that you use in the business are all covered up to the limit of the policy.

Business Interruption and Extra Expense Policies
The Business Interruption policy deals with the delay in company operations which occurs during any physical disaster situation. You are going to lose income during this period. Such a loss, and the costs of getting back into business, are covered by this type of policy. The extra expense policy is for service businesses and others that would not lose much time in restarting after a disaster but would face expenses in getting the business up and going again.

Liability Insurance
Liability coverage is a must for a small business and is the only way to deal with potentially ruinous claims. Fortunately, not every liability incident is that serious. Many are settled quite reasonably, in part, because insurance adjusters are skilled in negotiating a realistic agreement. Your liability exposure can be insured in two “tiers.” The first tier covers you for “normal” events such as accidents suffered on the premises by people not employed by you and damage inflicted by your employees while on company business off the premises. There is also limited liability coverage for your products and services. This type of policy will cover liability claims, including the cost of defending you in a lawsuit, up to specified amounts for specified risks and situations. The second tier of protection is called an “umbrella,” usually for $1 million, intended as protection against the catastrophic claim or judgment.

Life and Other Personal Insurance
The loss of a key manager, one with irreplaceable knowledge, would undoubtedly cause severe hardship to a business. It may even force a company out of business. That is the reason many businesses purchase insurance on the life of the owner and key managers, often referred to as “key-man” life insurance. In start-up situations, and particularly for sole proprietorships, this form of protection is almost always required as a condition for financing. Such policies are usually owned by the business, but the lender or investor is a beneficiary or loss-payee. Any cash value in the policy is a company asset, however. Don't overlook your own family when considering life insurance. Adequate life insurance is the only way a beginning entrepreneur can provide for his family's security in the event of a personal disaster.

Term Insurance
When buying life insurance, especially for business reasons, term insurance is what most people prefer. A term policy is valid for a specified period of time and provides a death benefit in return for the premium. It's pure protection, nothing more.

How Much to Buy?
Start by assessing the kind of business you are in and the risks you are exposed to as a consequence. To do this properly, obtain advice from your accountant, attorney and a good insurance broker or agent. Look at what you and your people do in the course of daily business; also look at the way visitors, clients, and suppliers “interface” with the business. Don't forget the way your product is sold, serviced, installed and finally used by customers.

In the area of property insurance, there is no way of calculating the probability of a natural disaster, a fire, or other disasters. Insurance against these perils is a necessity but there are some things you can do to make your coverage as cost effective as possible.