The Blank Center recently had the honor of having Cottingham & Butler insurance brokers on campus to present to members of Babson’s entrepreneurship community. The focus of the discussion was business insurance: Why entrepreneurs should care and the basics of its various forms.
Why You Should Care About Insurance
Starting a business involves a lot of risks! Insurance allows you to transfer some of these risks and focus on growing the business knowing that you have reliable coverage. Not convinced? After experiencing a disaster, 40% of businesses never reopen, and of those that do, over 25% fail within two years. With the right insurance plan, your company can avoid contributing to such negative statistics.
Property insurance covers direct damage to your building or business personal property caused by wind, fire, hail, lightning, explosion, and theft. Additional options include debris removal, fire department service charges, personal effects and property of others, off-premises property, and valuable papers and records.
Before deciding on a business location, consider the building type; when it was built; what materials the building was constructed with; whether it has sprinklers, coastal exposure, flood or earthquake exposure; and how much product or inventory you will have on hand. Newer buildings typically have lower insurance costs since they are equipped with more up-to-date systems.
Business Income and Extra Expense are actually two of the most important aspects of business coverage. Business Income provides coverage for lost income due to damage that causes you to close or temporarily halt operations. Extra Expense pays for additional costs to continue operations while your business location is under repair, reducing the loss of income.
General Liability insurance covers your company if your product, premises, operations, or advertising cause bodily injury or property damage to others. This coverage is based on revenue and potential damage; businesses with higher revenues and more hazardous products will pay more for insurance.
When starting your business, keep in mind how dangerous your products are, how many people your products can potentially injure, and whether you are going to provide benefits to your employees.
Auto insurance covers your automobiles from physical damage and provides liability coverage for others when you are at fault. Most commercial auto policies cover towing, rental reimbursement, employees driving their own vehicles, and even cars used by the business if you lack personal auto insurance.
With this in mind, ask yourself if your employees drive their own cars for your business, if your personal car is under your company name, if you have a personal auto policy, if you are transporting your business’ goods or those of others, and how much inventory could be on any given load.
Workers Compensation laws depend on what state your business is located in. Massachusetts mandates all businesses to carry worker compensation insurance, regardless of hours worked or wages paid.
Umbrella coverage enhances your existing General, Auto, and Employer policies. It covers catastrophic losses that exceed the standard limits provided by the above. You should purchase a policy that takes into account the worst possible situation that could be caused by your operations, such as an automobile accident or product claim.
Crime coverage is offered on a standalone basis or may be built into your Property coverage. These policies cover theft of property, theft of customer property, theft of money, electronic funds transfer fraud, computer fraud, and social engineering fraud – using a false identity to deceive someone in the company into parting with large amounts of money.
Ask yourself whether your employees could be stealing money, clients or suppliers from the business, whether your business relies on fund transfers, and whether your company uses computers and data for transactions.
Cyber policies provide coverage for security breaches in which personal information is stolen by a hacker. This includes first party liabilities such as legal fees, forensic accounting, event management, cyber extortion claims, notification costs, credit monitoring, loss of income, and network loss/damage; and third party liabilities including financial responsibility to others.
Employment Practices insurance covers discrimination, sexual or other workplace harassment, failure to hire or promote, wrongful termination, retaliation, employment-related defamation, family medical leave, wage claims defense cost, third-party sexual harassment or discrimination allegations, invasion of privacy, and equal employment opportunity commission lawsuits.
This session helped the entrepreneurs in attendance realize that insurance is not an abstract concept they should worry about in the future- it is only helpful when purchased before a problem occurs! Many were not aware that so many types of insurance existed, and not every company will need each one. The best coverage plan will vary from business to business.