February 1, 2013

Business Insurance Myths Busted

Small business owners have a lot on their plates. This means that small business owners have a heightened need to mitigate the many risks they juggle. The right business insurance can provide excellent protection, but small business owners should understand the truth behind these insurance myths before deciding on their coverage.

1. You Don’t Need Errors & Omissions Insurance if You Only Provide Advice

As a subject matter expert, you can be held liable for any negative impact that your advice causes a business. In fact, even if your work simply fails to live up to the expectations you set, a client could bring a lawsuit against you.

E&O policies provide funding for the legal services required to defend yourself against claims of negligence, even if those claims are frivolous. This is essential, since the legal defense costs (including lawyer’s fees) are often the most expensive part of an E&O lawsuit – they can easily range into tens of thousands of dollars.

2. You Don’t Need Workers’ Compensation Insurance if You Are the Only Employee of Your Company

Some states require all businesses to carry workers’ compensation insurance. So even if you’re a sole proprietor, you could still be required to carry workers’ comp, depending on where you live.

In other parts of the country, your coverage needs will depend on how many employees you have, how those employees are classified, and what kind of work you do.

3. You Don’t Need Business Coverage Because You Work at Home

Most homeowner’s insurance policies don’t cover business-related damages that occur in a home office. Too many home based small business owners find this out only after they go to file a claim.

Even if your homeowner’s insurance protects some of your business property, chances are good that that coverage won’t be in effect when you are traveling for work.

A simple general liability insurance policy or business owner’s policy can offer home based business owners the protection they need for both basic business property and certain types of injuries clients can suffer, whether the incidents occur at home or on the road.

4. You Don’t Need Business Auto Insurance Because You Drive Your Personal Car

Many personal auto insurance policies exclude coverage for business use. That means if you get into an accident, you might run into difficulties with your insurance provider.

The insurance needs for your car will depend on how it is primarily used. In other words, if you use it most often for business purposes (but sometimes for personal uses), it will likely require commercial auto coverage. If you use it most often for personal purposes (with the occasional business errand thrown in), it will likely require only personal coverage.

5. You Don’t Need Property Insurance Because You Work at Your Client’s Location and Use Your Client’s Equipment

Your property insurance needs will depend on the terms and conditions outlined in your client contracts. Some clients provide coverage for physical damages for work done at their locations, and some do not.

This is because insurance companies provide coverage based on who is responsible for a device or piece of equipment: if you are in charge or in control of the equipment, your insurance is likely responsible for covering any related damages.

6. Your Personal “Umbrella” Policy Will Cover Everything

Personal umbrella insurance will not cover everything. In fact, umbrella policies come with explicit limitations and exclusions.

7. You Need Insurance for Each Client Contract

In many cases, your business insurance will be sufficient for multiple client contracts. There are some exceptions, though. Fidelity bonds may need to be renewed for each new client, and contracts that involve high or complex risks may require supplemental insurance.

While it’s a good idea to verify that your insurance policies cover you for each new contract you secure, there’s a good chance you won’t need a new policy for every new client. Most policies define the services covered very broadly.

8. You Don’t Need Insurance Because You No Longer Have the Client You Purchased it For

Insurance protects you as a business owner. While not every client you work with will demand that you have coverage, carrying insurance regardless of your client’s demands puts you in a better risk-management position.

More important, though, canceling and restarting coverage as you need it may trigger red flags at insurance companies and can make it difficult for you to get coverage in the future when you need it.

9. If You Get Sued, You Can Simply Shut Down the Business

Closing your business will not necessarily protect you from a lawsuit. Courts tend not to care whether or not a business is currently operational.

10. You Don’t Need Business Insurance Because Your Contract Protects You

Contracts are put in place to outline the specific terms of a project and delineate whether or not lawsuits are available. In the event that you breach your contract somehow, the terms of the contract could be voided, opening you up to a lawsuit.

As a small business owner, the health and future of the business is among your primary concerns. While insurance protects against an uncertain future, it gives you the peace of mind you need to plan and manage your business.

For more information, contact TriState Business Insurance.