If you’re a business owner, then you may think you only need the basics when it comes to insurance: property, casualty, worker’s comp and general liability. But that doesn’t mean you’re properly covered. “There are a number of different types of business insurance you might want to buy to protect yourself, your family, your business and your employees,” says Martha Kendler, director of business markets at Northwestern Mutual.
Not having the proper insurance could have significant consequences for your company or for yourself, according to Stephanie Resnick, a legal expert on corporate governance at Fox Rothschild LLP in Philadelphia. “One uninsured incident,” she says, “could potentially have serious financial consequences for a business.”
One uninsured incident could potentially have serious financial consequences for a business.
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KEY PERSON INSURANCE
Key person insurance covers your business in the event that a crucial person in your company is unable to work due to disability or death. If you, the owner, or another key employee is injured and out of commission, key person insurance pays a benefit to the business, which can be used to replace revenue.
This type of coverage is especially important in fields where individual salespeople or highly-skilled workers are critical to a business’s bottom line. As a business owner, you should also consider disability overhead expense insurance to cover expenses like rent, utilities, or equipment maintenance in the event a disability were to sideline you.
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DISABILITY INCOME AND LIFE INSURANCE
Many people work for companies that offer them some form of disability income insurance, but if you own your own business, what would happen to your personal income if you got sick or became disabled? Disability income insurance ensures that you can continue to pay your personal bills if that were to happen.
“Many business owners don’t think about what would happen if they were unable to work,” Kendler says. “In many cases, it would mean that they would no longer have an income. For that reason, it’s important that they protect themselves and their families.”
While life insurance is important for everyone to have, it is particularly important for business owners. That’s because many personally borrow money in order to start their businesses. Whether you have taken out a bank loan or a business credit card in your name, repaying this debt out could be a significant financial burden for your family.
“Business owners should always have life insurance if they’ve personally guaranteed a loan for their business,” said Kendler. “That protects both their family and their business.”
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LIFE AND DISABILITY INSURANCE ON YOUR BUSINESS PARTNER
A buy-sell agreement governs what would happen to the business if you or your co-owner dies or becomes disabled. You and your co-owners should have a buy-sell agreement in place and a plan to fund the purchase of that person’s share of the business, typically with insurance.
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EMPLOYMENT PRACTICES LIABILITY INSURANCE
About 12 percent of small and medium-sized businesses are hit by employment claims like wrongful termination, sexual harassment or discrimination. Even if unfounded, such lawsuits can be costly to defend and could lead to big settlements or payouts.
“Employment practices liability insurance is valuable,” Resnick says, “as it protects against harassment, whistleblower claims and discrimination cases, which are issues affecting businesses of all sizes.”
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DIRECTORS AND OFFICERS INSURANCE
Directors and officers insurance protects the people who work for you or serve on your board from personal exposure to liability related to decisions they make and actions they take on behalf of the company. “Even if a claim is not viable, defending cases is costly,” Resnick says.
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BUSINESS INTERRUPTION INSURANCE
If a natural disaster like a hurricane — or the human-caused variety like a derailed freight train (it happens) — strikes your headquarters, your property insurance will cover physical damages. But what about lost business income if you are unable to operate? This benefit can replace lost income if that happen.
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DATA BREACH INSURANCE
It seems like there’s a new corporate data breach every time you turn on the news. Even small companies are experiencing these breaches — the consequences of which aren’t just embarrassing headlines, but also potential lawsuits. That’s why many companies in charge of collecting or storing sensitive data like personal or financial information are getting data breach or cyber insurance policies.
“These policies mitigate the risk of litigation,” says Resnick, “and in some cases can help pay for the required steps to respond to the situation and address compromised information.”
Social Security is an important part of your financial plan.
Your financial advisor can show you how Social Security will work to reinforce your retirement savings. And they’ll show you how it can help you live the life you want in retirement.
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