Sunday December 22, 2013
The unfortunate reality of insurance is that the people and entities that need it the most are often the people and entities that feel like they can’t afford it. That is especially true when it comes to certain types of liability coverage. Large companies can often afford to include coverage for credit problems, business interruption, or employment practices. However, small business owners are much more vulnerable to debt and lawsuits. Without insurance coverage, litigants will end up coming after personal property, including your home. While you may not be able to afford every a la carte item available to business owners, your commercial liability policy should take into account every potential risk.
Does Your Business Need Credit Insurance?
Credit insurance is not for everyone. Generally, insurers will only cover businesses that take in at least $5 million in revenue annually. This is not the same type of coverage offered by lenders to protect a home or business mortgage, or an attached debt offered by your credit card company. Credit insurance in a commercial insurance policy protects your business from the unpaid debts of consumers or clients. These policies can be very valuable to businesses that rely on distant or overseas trade, but it is not for retail establishments. Only manufacturers, wholesalers, or other service institutions are eligible for business credit insurance.
High premiums for this type of coverage can scare away small business owners, but you should calculate the potential cost of unpaid bills through one stream of trade or from one large buyer. Often, premiums can run as high as one percent of sales (for a business with $5 million in revenue, that’s $50,000). This is extremely expensive, but for some small business owners, financial vulnerability to others’ debts can make these premiums appear more affordable.
The High Cost of Lawsuits
Your commercial liability insurance generally offers some protection from lawsuits that involve medical costs and excessive legal fees. But your liability can extend to other areas as well. You may choose to include extra coverage for employment practices. According to the Equal Employment Opportunity Commission, the recent economic downturn has led to the highest number of claims for unlawful termination in the agency’s thirty-eight year history. Beyond unemployment insurance, employment practices insurance can help cover the cost of lawsuits that can involve greater penalties.
If your business has a relatively large workforce, you run of the risk of being liable for a number of workplace behaviors and incidents. Employment practices liability coverage protects you from litigation involving discrimination, harassment, defamation, or invasion of privacy. In contrast to general liability coverage, insurer payouts for legal costs under this type of policy will reduce policy coverage limits. There is no substitute for a responsible and positive work environment. For many small businesses, the best defense is an appropriate general commercial liability policy that accounts for unpredictable circumstances, rather than a costly policy with strict limitations of coverage.
Although you may be able to prevent many cases of unlawful termination or workplace harassment, situations will arise that can make sustaining your business very difficult. Many small businesses cannot withstand extended interruptions to business operations for any reason. Your commercial policy can include extra coverage for business interruption or extra expenses that are incurred in emergency situations.
When natural disasters hit the Front Range in September, 2013, many businesses lost more than just real estate property or equipment. In order for your business to survive in situations like these, you may have to swallow the loss of thousands of dollars in expected revenue while your business recovers. While property coverage can reimburse the loss of equipment or help pay for rebuilding, this type of coverage does not generally include payment for lost revenue. If you are considering business interruption insurance, you should make sure that you establish a premium that allows you to get what you need to maintain operations.
A Question of Protection
Small business owners often carry an enormous weight. The fortunes of their families, and the families that they employ, are tied indelibly to the success of the business. When your business faces litigation without the appropriate liability coverage, litigants can threaten your home and other personal property. There are a number of unpredictable events that can negatively affect your business, threatening not only your livelihood, but the livelihood of your employees.
Your small business coverage should reflect the real risks involved in your operation. Talk to your independent insurance agent about whether or not your business can benefit from credit insurance, employment practices insurance, or business interruption insurance.
CC Image courtesy of Stuart Miles