Introduction
So, your company is ready to launch. Which insurance should you buy? Your money is tight, and your life is at stake. This article discusses the insurance options for entrepreneurs trying to launch a new business. There are three main categories you should consider: 1. Required Insurance, 2. Critical Risks, 3. Economic Risks
Required insurance
A key concern for a new entrepreneur is insurance. These requirements can be from multiple sources.
Landlord – Often, a Landlord requirement in a leased area is an early insurance barricade. The typical lease for commercial space, such as an office, store, or other commercial space, has many clauses that will trigger insurance requirements to protect your landlord. Public Liability coverage is a requirement for landlords. This will protect your business from any potential lawsuits. An additional requirement for landlords is property coverage for tenant improvements. Indemnity and Hold Harmless Clauses will allow your insurance company to refuse to pay any landlord claim payments, even if they were responsible for the loss. To have access to your policy and be notified if it is cancelled, your landlord will need to be added as an Additional Insured. Your agent will be able to prepare a quote for you before you sign the commercial lease.
Bank Loan – A bank loan can be used as a source for your initial insurance requirements. Your bank will require you to protect your collateral if you borrow money with your business assets. Your banker will require adequate insurance to protect them and be named as a Loss Paiee. The insurance company must approve your banker before they can settle any claim and notify you if it is cancelled.
Jobsites – Many trades in the construction industry have very specific jobsite requirements. These requirements may be required if you’re an artisan subcontractor. General Liability Insurance is required for most construction jobs. Business Auto Insurance or Worker’s Compensation are also required. The insurance requirements for a job are usually more complex the larger it is. Before you begin work, make sure to get a copy to show your agent the insurance requirements. Do not accept any job or General Contractor without knowing these requirements. They will not release your paycheck until you meet the insurance requirements.
Government – The most common legal requirements for business vehicles are the government. Texas has a minimum requirement for auto liability. Special vehicles and passenger-carrying vehicles that are larger than standard vehicles have higher legal requirements. Additional filing requirements are required by the state. Texas does not offer Worker’s Compensation, but many other states require that business owners have it. Some trades licenses in the state will require reporting and liability insurance coverage.
Critical Risks
Once you have taken care of the insurance requirements, your next priority should be to address the critical risks that can threaten the business without insurance coverage. You may already have insurance that covers some of these risks. It is important to review your financial situation and find risks that you are unable to afford.
You might need to have higher liability limits in order for your business be considered a safe investment. Perhaps an asset is too expensive to replace. Worker’s Compensation, even though it’s not mandatory in Texas is a valuable protection against the enormous risk that an employee gets hurt at work. There are many possible sources of lawsuits. Which risks does your company need liability protection? An assessment by a business lawyer may help you identify potential areas of litigation venerability.
Even if it’s not possible to finance this extra protection when your business opens, you should still try to get insurance that covers these critical risks as soon and as often as possible. Your new business won’t be a safe investment unless you can offset the business-end risks by purchasing insurance protection.
Economic Risks
Third, you should prioritize the risks you want to insure as they are a good value. You don’t need to take on a large risk even if it is possible to survive the loss. Affordable insurance can help you offset that risk. The most valuable asset to insure is equipment, inventory, or vehicles. You should weigh the pros and cons over a reasonable period of time. Is it worth paying an insurance premium to protect yourself or to save the cost of insurance and take out self-insured for potential losses? High property deductibles can be a great strategy. This allows you to take smaller risks and shift the larger asset risks to an insurer.
Although your cash flow might not be sufficient for you to purchase protection against economic risks immediately, keep your list open to add more productive coverage as you can. Prudent use of insurance protection to protect your valuable assets will improve your long-term profitability.
Summary
Include insurance in your business plan. The insurance requirements that will prevent you from starting your business are the first thing you should focus on. You should also fund insurance protection for any potential risks that could lead to the demise of your business. Finally, when your revenue becomes available, increase your long-term financial outcomes by adding protection for larger assets that can economically insured. Best of luck with your new venture.