Essential Insurance Coverage
Most people look at insurance as a pain, sort of like paying the utility bills. However, it would be pretty difficult to operate a business, let alone a technology based business, without a functional phone, internet, or electricity. Now try operating your business after you have been sued and the defense costs have eaten away at what little reserves you had, forcing you to declare bankruptcy, and all because you didn’t have the proper insurance that would have covered those costs.
The purpose of this blog post is to give you an idea of the types of policies your business needs to adequately protect it on Day 1, as well as Day 1,000. The six major insurance policies you absolutely must have to protect your business are Property, General Liability, Errors and Omissions Liability (often referred to as E&O or Professional Liability), Data Breach, Workers Compensation, and Employment Practices Liability. Each policy covers a key aspect of your business and each policy alone could save you from losing what you have worked so hard to build.
There is a strong likelihood that you rent, or will be renting, the space your office occupies. Even though you do not own the building or even your unit, you still need coverage for the property that belongs to your business. Office equipment, furniture, pictures, signs, cash on the premises, upgrades to your space that have been paid for by your business, even your business income is protected by Property insurance. If an employee steals from you, your Property insurance is the policy that acts. For most technology based businesses, Property and General Liability are grouped into what is known as a Businessowners policy that automatically includes coverage for many of the aforementioned items.
Speaking of General Liability, the most common insurance policy in the business world is the General Liability policy. Your General Liability policy is the policy that acts in the event that a client or non-employee is injured while on your premises and decides to sue you. General Liability will also cover defense costs and damages from a Libel, Slander, or False Advertising lawsuit. This is the policy your landlord is, most likely, requiring you to carry. The reason they want you to carry this is so they can be added on as an Additional Insured and they can avoid a claim going on their policy for something that takes place in your rented space. Another reason you need a General Liability policy is because most carriers will not write your Professional Liability without it, due to the huge gap in coverage not having a General Liability policy leaves.
This brings us to our next policy, the Errors and Omissions policy. E&O coverage will act when you are sued for a professional mistake. For example, you design a website for a business that caters to families. You have taken the site live and your client calls to inform you that a handful of their clients complained the website directed them to an adult website while their kids were in the room. In turn, your client has now lost their clients and are suing you for your negligence. Your E&O policy will cover the damages and defense costs associated with this lawsuit up to the limit on your policy.
Another policy that is essential for any business that is holding the personal information of other individuals or businesses is a Data Breach policy. Target, Home Depot, Staples, Sony, even Adobe, have all suffered data breaches. You might be thinking, “Well, we’re not even close to being on that level so why would anyone come after us?” That is exactly why they will come after you! A small business helps keep the actions of a hacker under the radar because it is a low profile crime. Meanwhile, they have information from your clients and even your employees that can be used to steal their identities. Data Breach coverage will cover the expenses involved with informing people of the breach, damages, and defense costs within the policy limits.
The likelihood of one of your employees or contractors getting hurt on the job if you are say, a web design firm, is rather slim. Insurance companies know this and rate their Workers Compensation policies accordingly based on the annual payroll of each job classification. If your employee is sitting at a desk all day, their rate will be much lower than an employee who is climbing ladders. If one of your employees happens to be injured on the job, your Workers Compensation insurance will cover their medical expenses. A few key points about Workers Compensation:
-In the State of Illinois, Workers Compensation is the law and you must carry it or face stiff fines and penalties.
-The City of Chicago has been known to revoke business licenses for businesses who do not carry Workers Compensation and shut them down until they are in compliance.
-Even if everyone working for you is classified as a 1099 Independent Contractor, you are still responsible for their Workers Compensation unless they have purchased their own policy.
If you own a business, most likely you will be hiring people and terminating people. Sometimes companies are accused of not hiring individuals because of their race, gender, age, or even sexual orientation. Other times companies are accused of firing people for the same reasons. And, in some instances, companies are accused of having a hostile work environment where employees are harassed by their peers and their supervisors. Employment Practices Liability Insurance is the coverage that acts to defend and pay damages, up to the policy limits, if any of these instances arise.
In conclusion, insurance can be a major headache to deal with when you do not understand what it does or why you need it. The best way to go about alleviating the stress is to align yourself with a reputable insurance broker. A good insurance broker will guide you through the buying process and give you peace of mind that your business can survive through the worst case scenario.
Jonathan Mayotte is a Licensed Property & Casualty Insurance Agent with Thornton Powell Insurance in Oak Forest, IL. You can reach him at (708) 752-8242 or email@example.com