Protecting Your Business From Liability

When Alaina Paul-Mensah decided to open her restaurant, Alaina’s Berries & Creole Cafe, she knew that her company needed insurance protection. What she didn’t realize was that there were several options available to her. “I really had to do my homework and shop around,” says the Sacramento, Calif.-based private chef. “One broker gave me a quote and tried to pressure me to sign, but I’m glad I waited, because I eventually found a better deal.”

Insurance experts say that Paul-Mensah is ahead of the curve because she realized early on how important insurance is to her company.

“Many small business owners don’t think about coverage until it’s too late,” says Hyacinth Tucker, owner of Tucker Insurance Agency in Crofton, Maryland. The need for an insurance claim could come from something as simple as a broken air conditioner or as devastating as a fire.

If you don’t have a policy in place, you can’t be helped, so take steps now to make sure your company is protected. Decide on a comprehensive policy, find the best price for it, and make ongoing insurance adjustments as your company grows.

Consider a business owner’s policy. Some forms of insurance cover bodily injury claims. Others cover property damage. The business owner’s policy covers both and more, Tucker says. “If something were to happen to your company

because of hail, a windstorm, or fire, you’d still need to continue your business. You’d still be responsible for lines of credit, employee wages and benefits,” Tucker says. A business owner’s policy would replace loss of income so those bills could be paid. To have adequate coverage, Tucker recommends having insurance worth $1 million to $2 million.

The costs for these policies are determined in part by the risk factors for business. “The policy for a caterer (who could be sued for food poisoning) would probably cost more than the policy for a seamstress,” Tucker explains. She says that premiums might be as low as $250 a year for low-risk, inexpensive trades, and go up to a few thousand dollars per year for contractors or transportation companies.

Shop around. “There are a big differences in rates from one insurance company

to another, so make a few phone calls and get different quotes before selecting one,” says Eric Huffman of Eric Huffman Insurance Inc., a State Farm Insurance company in Detroit, Michigan. “Not only get the rate quote, but also make the insurance companies write out what your coverage, deductibles, and contents would be. Then make apples-to-apples comparisons.”

Part of the policy cost will be based on the amount of inventory you have. When tallying up the value of these goods, be sure to consider seasonal fluctuations. “If you’re a florist, you might only have $10,000 worth of inventory in the fall, but around the holidays, your need for inventory coverage could increase to $20,000,” Tucker says.

Investigate other forms of insurance as your business grows. Once you have an adequate business owner’s insurance policy, consider adding worker’s compensation, disability, and key man insurance, particularly if you plan to hire employees. For more information on these insurance products, check with your industry trade association for guidance, or contact a local insurance agent.

“After you obtain your policies and have correct coverage, it can be smooth sailing from there,” Tucker says.