The types of coverage you need depends on several factors: The size of your small business, how your small business is organized (sole proprietorship, partnership, corporation, LLC), number of employees, type of compensation you're receiving (salary, fees, commissions), nature of small business (service, product), where it is located, and your exposure to liability.
Things to ponder:
Heaven forbid, but do you have more than enough insurance to protect your spouse and children? If you have a small service business, your small business is worth Zero when you die. For example, the spouse of a deceased doctor or lawyer can only sell the tools of the trade, not the clients (the true bread and butter of any small service business). Get a crystal ball and see into the future to know when you are going to die then you could sell your small business before you kick the bucket. But that's not very likely, so you and every small service business owner should make sure that you protect your family with at least seven times your gross income. So, if you make $100,000 per year then you should have over $700,000 in insurance.
If your goal is to have a member of your family take over your small business at your demise, are they capable (and licensed) to do so?
What happens if you get ill or suffer an injury and can no longer run your small business? Do you have disability insurance? For a stipulated period of time, you will be paid approximately 60% of your income when you have disability insurance. The benefit may be taxable or non-taxable (depending on whether or not you deducted the premium as a business expense.)
Here's an even more important question than anything we covered before: Do you have enough "business overhead insurance" if you have any at all? While you're out of commission, who will cover the costs of running your small business like utilities, insurance and salaries? Disability Insurance will not cover your small business overhead expenses, unless it is an add-on.
If you have partners, do you have a Buy-Sell Agreement? Well, if you or your partner should suddenly die, your interest in the business will be protected. Here's a great example of this: your partner dies and his wife wants to claim her share of the business. What if your partner's relatives have no idea how to operate the business? Would they be asset or a liability? Well, if you have this type of insurance coverage, you could avoid all of this interference by outside parties by simply buying out your partner's share of the business.
What about "disability buy-out coverage"? Do you have it? If your partner was to become severly disabled, you would be presented with several problems without this particular type of insurance. Do you want to keep paying him (or her) for work he cannot do, possibly for years? You wouldn't have to worry about this situation if you have this type of insurance because your partner would be forced, based upon a previously signed and equitable agreement, to sell his portion of the company to you.
Of course, many of these situations may not occur, but it's your small business. Decide which types of coverage you deem most important...then speak to a professional who can give you the types of coverage you need to protect your enterprise.
Edward Brancheau created The Bank of Green to advise small businesses about subjects like
affordable small business health insurance and to help individuals build wealth through
their home equity.
