Determining Your Insurance Needs

Only you, the business owner, know what is adequate insurance coverage for your operation. What can you afford to write-off in the event of a loss (e.g. fire, and theft) for which you have no, or limited, coverage?

The insurance coverage you choose will be the difference between security against unforeseen losses (including lawsuit defense and judgment) and responsibility for such losses out of your own pocket. If you do not feel the possibility of risk of loss outweighs the payment of yearly premiums, then going without insurance may work for you. In that case, you may simply want to self insure. For most small busineses, a loss can be catastrophic, and the premium cost is worth the peace of mind.

You need to not only be aware of the amount of insurance you want to carry, but also what is insured should there be a loss. All insurance claims are based on five considerations, involving the person, property, peril, exclusions and conditions:

  1. Is the person involved in the loss or accident an insured person under the policy?
  2. Is the property being claimed listed on the policy declarations?
  3. Is the peril (cause of loss) a covered loss under the policy?
  4. Is the event causing the loss or accident excluded under the policy?
  5. Does the loss or accident meet the conditions set forth in the policy?
  6. Is it limited in any way by the conditions set forth in the policy?

Each of these must be addressed when determining what insurance you want to carry. Your first step should be to take stock of what it is that you want loss protection for. Here are some items you may wish to carry insurance on:

  • Equipment (e.g. computers, fax machines)
  • Inventory
  • Buildings, land or fixtures
  • Liability
  • Business Interruption
  • Only vehicles registered to the business
  • All vehicles owned by you
  • Any vehicle, even those owned by employees while being used in the business, or which your business temporarily uses
  • Key employees in the business

Decide how much each is worth, should a loss occur. Be realistic. You want to have sufficient insurance, but you don't want to pay for more than you need.

Once you know what you want to insure, decide what kind of coverage you need. What is it you would like to be protected from?

  • Everything possible?
  • Fire?
  • Theft?
  • Catastrophes?
  • Accidents?
  • Loss of Income?

You will also need to determine who you would like covered.

  • All employees?
  • Selected employees?
  • Customers?

With this information in hand, find a professional insurance agent to shop around for the best prices for the package which fits your need. Also, discuss the exclusions and conditions which exist on the policies of the insurance companies the agent recommends. Will any of these exclusions or conditions serve to restrict your operation? If so, seek another type of policy or determine if there are endorsements (an alteration to your policy which may decrease or increase, limit or render void the coverage) that can be added to the policy to counteract the exclusion or condition.

For those operating home-based businesses, take a close look at your homeowner's policy. Most homeowner policies limit, or even exclude, coverage for any business-related equipment. This includes personal computers, fax machines, laptops, and inventory. You may be able to get an endorsement to cover your home-based business on your homeowner's policy or buy a limited insurance package tailored specifically towards home-based businesses.