Money is tight, time flies and with so many things on your mind, protecting yourself and your business against some potential disasters just doesn’t seem that important. However, it doesn’t take much to destroy everything you’ve worked so hard to build. One of the most common mistakes entrepreneurs make is failing to insure their businesses. However, not protecting your business could be a big professional mistake. There are a few insurances that you must consider taking before opening your doors.
First of all, protect your business against financial losses due to 3rd party claims you are accountable for. When your business is protected, think about covering your main assets: your employees and yourself. On top of those, depending of your activity, you might want to consider insuring yourself against cyber-attacks, insure your offices, tools…
Here is a list of some of the most common business insurances available and that you should consider:
1) Professional Liability and Omission Insurance
Professional Liability or Error and Omission insurance is a type of business insurance policy. It aims to protect businesses in the advice giving industry in the event of a negligence, or a claim linked to the services or advice provided. A professional liability insurance will cover you if a claim or an allegation is made against you.
The coverage offered by this insurance can include a lot of cases such as negligent acts, misleading statements, defamation, intellectual property right infringement, loss of data… Some professions such as accountants, lawyers, architects or even insurance brokers are legally required to get a professional liability insurance in order to open a business.
This insurance helps you keep your finances, your livelihood and your reputation in one piece. Even if you could cope with the financial burden, the time spent to settle the issue might be a business killer!
Furthermore, some partners, vendors or clients might request a proof of coverage before doing business with you.
2) Public Liability
Public liability insurance is for businesses who interact with third parties. It covers you if a third party claims for property damage or body injuries. This insurance helps you pay the bill and the legal expenses incurred to settle it.
It covers you for most accidents that could occur at any business. For example, if a visitor slips on a loose step, this type of insurance will cover you. Note that the public liability insurance covers you only for third party claims. It will not cover any expenses related to a claim from one of your employee.
A public liability insurance is a must-have as soon as you open your business!
Keep in mind that people ask for compensations when accidents occur. You probably don’t have the time and the money for them, therefore a public liability is the right call to make. Furthermore, many clients can ask you to have a suitable coverage in order to do business with you.
3) Director & Officers Insurance
A director and officers, or D&O, insurance covers the management teams any claims made by a third party. The allegations are caused by their decisions and actions taken within their scope of duties and responsibilities. For example, one of your managers or even yourself can be sued by a stakeholder who suffers from a financial loss.
There are 3 “sides” to D&O insurance:
A) Side A:
It protects your management team from claims alleging professional errors. This means that their decisions or/and actions have had a negative impact on the company’s value and on your client’s business.
B) Side B:
It protects your company in case it needs to indemnify and/or pay for the defense of one of its directors or officers.
C) Side C:
It protects the company in the case of shareholder lawsuit. It protects against the legal costs occurring while defending the company’s business actions.
This insurance is important but might not be a priority. However, you should consider it when you company grows and you have external investors or a board of directors. In addition, check what your policy covers as the level and lines of coverage can vary quite a lot.
Some policies have exclusion on claims that are made by major shareholders, make sure you pay attention to the policy wordings.
4) Product Liability
A product liability protects a business against claims due to damages caused by one of its products. The coverages are tailored according to the business and the products it sells.
There are many example of product malfunctions where a product liability insurance was useful. Here is a famous case:
In 1994, Stella Liebeck purchased a hot coffee at McDonalds. Accidentally, she poured it over her lower body and suffered third degree burns. Her lawyers argued that McDonald’s served the coffee too hot. Their coffee was usually served around 180°F (82°C) while most of the competitors serve it at only 140°F (60°C). She won the case and received 2.7 million US$ in punitive damages and 160,000 US$ for medical expenses.
As you’ve seen with this example above, a product malfunction can have immense consequences on your business. This insurance is not for every business but if you manufacture products for the general market, you should really consider it.
Here are a few important insurance policies that you can consider as a CEO. However, keep in mind that there are other insurances types that you could look at. Furthermore, depending on your business type and your activity, you may need to subscribe to specific insurances. Another point that may be beneficial for you is to cover, not only your business but also your employees. In that case, you may want to find out why it is important to cover your employees.
This post was previously published on UEX Health insurance blog