Hedge your risks
Every individual or business is averse to risks. But, they certainly do occur. So the rational thing to do is to take steps towards protecting oneself or the business from the damaging consequences of risks. You may have wrong or cloudy perceptions about insurance or you have always been a fantastic optimist that believes that you can’t go down. Whatever, every business or startup needs to be protected or your eventual realization may come too late.
Start-Up Digest, understanding the need to hedge risks in the lifecycle of any business sought clarifications on the likely Insurance policies or risk protective steps any new business can take.
Liability insurance
Every business needs liability insurance. A liability insurance policy provides you with both legal and financial assistance if you, one of your employees or one of your products is alleged to have caused bodily harm or property damage.
Another type of liability insurance is called professional liability insurance, also known as Errors and Omissions insurance. It covers damages and legal defense stemming from improper rendering of professional services. If you own a law firm and one of your attorneys gives legal advice that gets a client sent to jail, or you own a hair salon and one of your stylists butchers a young starlet who loses out on a role as a result, professional liability insurance will provide the protection your business needs.
Property insurance
The property of your business also requires protection. If you own your facilities or have valuable equipment that your business would be unable to function without, then a property insurance policy is a worthwhile investment. A property insurance policy can protect your business from losses related to fire, theft, smoke damage and vandalism. Many business owners combine property insurance with business interruption insurance, which provides for the lost income stemming from the unavailable equipment.
Worker’s Ccompensation
Worker’s Compensation is more than just a good idea. In many jurisdictions, it’s the law. This type of insurance provides an employee with medical benefits and wage replacement if an injury occurs in the workplace. In exchange, the employee foregoes any legal action against the business. Any business with employees who earn a standard taxable wage must have a policy. Penalties for noncompliance vary by municipality, but are generally severe, up to and including being sued out of business by an employee who could have used a bit more training time.
Life insurance
While a successful company is built to last forever (or until it’s acquired), the people who run it are not. Life insurance is more commonly used to protect a person’s family from economic hardship resulting from their death, but it can also be used to protect business partners and the company itself from your mortality. It works the same way as does a standard life insurance policy: you pay a periodic premium in exchange for a death benefit paid to a beneficiary. In the context of business, a life insurance policy is often used as part of a buy/sell agreement.
In this type of arrangement, business partners own policies on each other’s lives worth enough to purchase the remaining stake in a business if one of them should die, ensuring the continuity of the business. The payout can also cover any debts you may have to keep them from impacting your family or business.
Life insurance can also be used to protect a business from the loss of valuable employees. Every business has certain employees who are so integral to the company’s operations that it would be crippled in their absence, and so many business owners use what is known as key man insurance to guard against their loss. Key man insurance is a policy the business holds that pays a benefit in the event of a core employee’s death, just in case they are unprofessional enough to pass away in the middle of an important project.
Many things can go wrong at a startup, and so business owners must be prepared to minimize the negative impact with insurance coverage. Some providers even offer what is known as a business owner’s policy or BOP that combines multiple insurance policies into a discounted bundle tailored to the needs of your business. Insurance coverage is as important to your startup as you are, as entrepreneurship is enough of a gamble, even with comprehensive coverage.