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Insure your Business against Risks
By Jack Chevalier
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.
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