How insurance can protect your small business

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The protections you get from choosing a business structure like an LLC or a corporation typically only protect your personal property from lawsuits, and even that protection is limited.

Business insurance can fill in the gaps to make sure both your personal assets and your business assets are fully protected from unexpected catastrophes.

In some instances, you might be legally required to purchase certain types of business insurance. In Colorado, for example, employers are required to obtain and maintain workers’ compensation insurance for one or more employees (with few exceptions). You may be required to pay unemployment insurance premiums if you meet specific requirements. Visit the Colorado Department of Labor and Employment website (www.colorado.gov/pacific/cdle) to find out the requirements for your business.

No matter what type of business you own, you operate under some degree of risk. As local small businesses have learned, wildfires and floods are unpredictable and affect revenue and expense. And no business is completely immune to lawsuits. Fortunately, however, a variety of insurance options exist to help protect small businesses.

Among the most common types of small business insurance are…

General liability insurance

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Also known as commercial general liability insurance, this type typically covers claims associated with accidents or injuries on your property or your clients’ premises. General liability policies offer financial protection in the event of bodily injury, property damage, medical expenses, libel, slander and the cost of defending lawsuits.

Home-based business insurance

Because homeowner’s insurance policies don’t usually cover home-based business losses, you might consider adding riders to your policy if you run your business from your home. They can help protect you against financial loss due to normal business risks such as property damage. Realize, however, that coverage may be limited and other forms of insurance might provide better protection.

Professional liability insurance

This type of insurance is generally geared toward professional services providers. It’s also commonly known as errors and omissions insurance and protects your business against claims of damages that your advice or services caused through malpractice, errors or negligence.

Product liability insurance

If your company manufactures, sells or distributes products, it may be liable for product safety. Product liability insurance offers protection against claims that a product caused bodily injury or harm.

Commercial property insurance

Commercial property insurance can help you recover financially if disaster strikes and damages your computers, furniture, inventory, equipment, office building and other property. Covered events might include wind, hail, fire, theft or vandalism. Some policies also include business interruption insurance that helps make up for lost income for a period of time if loss of your commercial property prevents you from conducting business.

The following four steps will help a business seek insurance solutions:

1. Assess your risks. Think about what kind of accidents, natural disasters or lawsuits could damage your business. If you need help, the National Federation of Independent Businesses provides information for choosing insurance -— helping you assess your risks and making sure you’ve insured every aspect of your business.

2. Find a reputable licensed agent. Commercial insurance agents can help you find policies that match your business needs. You will be entering into a business relationship, so it is important to find a licensed agent who understands your needs.

3. Shop around. Prices and benefits can vary significantly. You should compare rates, terms and benefits for insurance offers from several different agents.

4. Re-assess every year. As your business grows, so do your liabilities. If you have purchased or replaced equipment or expanded operations, you should contact your insurance agent to discuss changes in your business and how they affect your coverage.

As you explore whether your company may need any of these types of business insurance or others, consider talking with a mentor at your local Colorado Springs SCORE chapter who can help you identify trusted, knowledgeable insurance resources. SCORE volunteers provide assistance on a free, confidential basis.

Tom Harman is a retired small business executive/owner and a mentor with the Colorado Springs Chapter of SCORE, a nonprofit resource partner of the U.S. Small Business Administration. He can be reached at tom.harman@scorevolunteer.org.