I have a small-to-medium-sized business. What are the main types of insurance that I should carry?
The most common answer you should expect is "every business is different, call an agent." This is quite correct, as a small business selling fireworks out of a trailer is going to have different needs from an advertising production company using professionally-recorded music in their ads.
To give you a head start, however, here’s a general approach which is an important part of putting together your business plan anyhow (you *do* have a business plan, right?):
– In what ways are you at risk? Can a $15,000 bottle of champagne crash to the floor? Can someone steal your intellectual property? Will a natural disaster ruin your crops? Are you simply in a bad area?
– In what ways are your customers at risk? Do you have bulldozers which could run over their custom-engineered Orchids? Will the sound system you installed in their mansion set the whole place on fire? Perhaps they’ll get drunk at your bar, then slip on a piece of ice on the floor, bump their head, drive home drunk and concussed and get in a 5-car accident that takes out part of a building and shuts down traffic for 2 hours.
– In what ways do you put "the world" at risk? Are your drivers ALWAYS perfect? Does your business always clean up every nail, every drop of oil, every bit of mess it makes? Do your marketing tactics include marketing via the telephone, and are you fully versed on all the current telemarketing laws?
Insurance isn’t just that thing you’re supposed to have, shop it like you’d shop anything else for your business and understand what options are available. With all of that said, I tend towards the following basic package for most of my businesses:
$1/2M General Liability – at a maximum of $1m per incident and $2m overall, you’re covering the "big scary thing" which might happen but probably won’t. CHECK CAREFULLY to ensure you know what is and is not covered under your "General" liability policy. Ask questions. Record answers.
$5M E&O (Errors & Omissions) – There are a number of ways to describe this policy, but it’s basically your "We screwed up" insurance. The less intellectual property you deal with, the less expensive this will generally tend to be, but it’s almost always worth it. For our local business listing site, Nanapages.com, I bumped this to $5M/10M ($10 Million total, $5 Million max per incident) since we are an information-centric business and we believe in protecting ourselves and our customers. For straight product-based e-commerce, such as Buynana.com or VegasVapor.com, the $5M base works just fine, just be sure your content is original or authorized for use (i.e. don’t steal Wal-Mart’s product descriptions).
Business Property insurance – This is totally dependent upon your business model. Do you have a large amount of inventory? Do you make large purchases? These then have to be transported to you, processed, and inventoried, leaving various points where things can go wrong. Check to be sure you’re covered during transport as many sellers limit their liability to their loading dock. Protect your property from the moment you’re responsible for it until it’s paid for, opened, and never coming back because of your happy customer.
Those are basics, but should at least get you thinking about how to protect yourself from the completely random but normal (to businesspeople) things that can happen, especially the catastrophic ones which can put you out of business.
Final note on insurance – Shop, don’t skimp! Do not be afraid to call 3, 5, 10, 20 brokers to get different offers on different packages and compare, compare, read details, etc. What you don’t want to do is go with the lowest price without reading closely at what you are and aren’t getting. This holds true in just about anything, but business insurance can be heavily customized, specifically failing to cover "incidents involving washing machines" for your laundromat.
Yeknomgod is a crazy person and should never, ever be taken so seriously that you could sue him for anything. Ever.
