Maintaining Financial Solvency as an Entrepreneur After a Major Accident or Illness

As a business owner, sustaining your overall operations is not the only factor to consider in ensuring a steady stream of cash flow. To be considered financially solvent, an entrepreneur needs to raise revenues for other business-related financial obligations; from business taxes, long-term debts, and other expenses, both projected and unforeseen.

One such unforeseen incidents include damages and liabilities from your employees, from a third-party contractor, or even a client. Without business insurance, you’ll be left spending your own money to cover the costs for property damages and other liability claims against your business organization. That’s one of the main reasons why some states require businesses to acquire certain types of insurance—to remain solvent and capable of meeting their financial obligations, despite accidents and other unfavorable circumstances.

What kind of business insurance should you get for your company? Let’s explore the different types of business insurance and how it can help you weather uncertainties like accidents and illnesses.

Why does your business need insurance?

Uncertainties happen, and so do occupational accidents. Whether you operate a service-oriented business or not, you need insurance to protect your assets from damages, and internal, as well as third-party liabilities.

There are many types of business insurances to choose from, depending on the risks faced by your business. Think about the type of work that you and your staff do on a daily basis, the condition and location of your premises, assets, and other properties, as well as the likelihood of your business inflicting accidental damage on your customers’ properties and assets.

What are the types of business insurance for small businesses?

The types of insurance generally falls into the three categories: insurance policies for business owners, employees, and liability and disasters.

1. Business Owner’s Policy

Most businesses need a business owner’s policy, which covers business property, business liability, and business income insurance.

• Business property insurance: Aside from service-oriented enterprises, several types of businesses such as those in the retailing, manufacturing and even non-profit organizations, subscribe to a business property insurance, which is typically offered along with other insurance types.

Also called commercial property insurance, this insurance type covers your physical location as well as assets, including office tools and equipment, against damages arising from fire and theft. Your building, whether owned or rented, as well as your equipment will be protected by this type of insurance.

• Business liability insurance: This type of insurance helps you cover the costs of claims made against your business. If a client happens to get injured within your premises and decides to sue your organization, your insurance provider will be able to deal with slip and fall lawyers representing the injured party.
• Business income insurance: In cases where your business can’t operate because of circumstances beyond your control, such as damaged property due to fire, wind, hail, you can rely on business income insurance to cover your financial obligations and continue paying your bills, rent, and employee payroll. Other natural calamities such as flood, earthquake or glass breakage are typically not covered by this type of insurance.

You can also use this to pay for the costs incurred if you decide to temporarily relocate to another site, in case or fire or any other natural calamities damaging your office.

2. Policies for Executives and Employees

As earlier mentioned, most states require businesses to have insurance coverage, particularly for organizations with employees apart from the owner. Keep in mind that most jurisdictions will consider an uninsured subcontractor or contractor as your employee if they sustain injuries during the course of their work for your business.

A business owner who fails to provide coverage for its employees can face fines, penalties and criminal charges.

• Workers’ compensation insurance: Workers who are not able to report for work because of illness or occupation-related injuries are covered by this type of insurance. This policy can cover workers’ medical bills, compensate for lost wages, ongoing medical care, and cover funeral costs for work-related deaths.
• Unemployment insurance: Employees who find themselves without work can rely on the unemployment insurance to cover some of the expenses while waiting for their new job.
• Disability insurance: Depending on which state you’re operating your business from, you may also be required to get this type of insurance for your workers, which covers serious injuries resulting for work-related activities.

3. Policies for Liability and Disasters

Aside from the mandated business insurance coverage that you have to get for yourself, your property, and your employees, you may also consider the following insurance policies:

• General liability insurance: Consider getting this if your business is susceptible to accidents that may inflict physical injuries and property damages to your customers. A general liability insurance covers both the medical costs and lawyer’s fees that may be incurred by your products, services, and operations. Some insurance companies cover your business in case your landlord claims damages to his or her property as a result of your business operations.
• Professional liability insurance: This type of policy covers professionals, for instance, doctors and lawyers, against accusations of negligence, malpractice, and other claims filed by their clients. Also known as Errors and Omissions (E&O) insurance, this protects professionals from lawsuits that claim they made a mistake in their professional services.
• Data breach insurance: Because of digital files being stored on servers and other digital platforms, the risk of cyber-attacks, data breaches, and hacking of company information, including financial data available online. This policy covers expenses related to your business costs in notifying affected clients or individuals, offering identity theft monitoring services, and creating a public relations campaign to minimize the negative impact of data leak.

In some case, though, data breach insurance is consolidated with the Errors and Omissions insurance coverage.

• Commercial auto insurance: If you’re in the logistics business, you may want to consider getting this to protect your fleet. That’s because a commercial vehicle insurance protects you and your employees while travelling using company-owned vehicles—whether it’s a four-door sedan, a commercial truck, or other similar vehicles.

As a comprehensive type of insurance, it can help cover property damage and bodily injury claims from an accident caused by your business. This type of policy is not only ideal for those in the logistics sector but perhaps for all businesses that use vehicles often, as a personal car insurance policy doesn’t cover third-party claims in an accident involving a business-owned vehicle.

• Commercial umbrella insurance: If you think your business may be prone to high-cost claims and liabilities, consider getting this type of insurance. A commercial umbrella insurance covers the extra costs that your existing insurance can’t cover. Simply put, if a claim exceeds your policy limits, your umbrella insurance can help cover the difference.

For instance, if your business liability for a certain claim will cost you $1.3 million and you policy only covers $1 million, your commercial umbrella should cover the $300,000 difference, or any amount as stipulated within your policy limits.

Key Takeaway

Businesses should still be able to meet its long-term financial obligations, especially after a major accident or illness. Without an insurance, a business owner will have to cover out-of-pocket costs for costly expenses for damages, liabilities and injuries incurred by its employees, clients, and other third-parties. This could negatively impact the business and may even cause a shutdown.