(posted 6/22/98)

Running your own business can indeed be risky -- but you can minimize some of the uncertainty, at least, by having enough insurance to cover any unexpected unpleasantness.

Business insurance is not just for corporate giants. In fact, the smaller you are, the greater the likelihood that a lawsuit could put a huge dent in your business, or even wipe you out altogether. On the other hand, being overinsured is a total waste of money. The trick is to strike a balance for the right amount of protection at the least possible price.

Raising your deductibles to the highest comfortable level will keep your premiums low. Other measures you can take to reduce your rates is to maintain a well-lit facility with adequate access to fire and police departments. Implementing good security and fire protection measures and filing fewer claims affects rates favorably, too.

BOPs and CPPs

Businessowners Policies (BOPs)
BOPs are standard reasonably priced insurance packages for small offices, stores, and apartment buildings that usually include general liability coverage. BOPs may even provide protection against embezzlement, damage to equipment and machinery, or business interruption.

Commercial Package Policies (CPPs)
All businesses are not eligible for BOPs, though. If you have a restaurant or manufacturing business, for example, you probably won't qualify. The alternative is to look into a commercial package policy (CPP). CPPs cost about a third more than BOPs but allow businesses to tailor coverage.

Which types of businesses are eligible for BOPs and CPPs vary according to the insurance providers, so if you get turned down for a BOP by one carrier, shop around to see if you qualify under the guidelines of a different company before going the CPP route.

Learn the Lingo

Whether you purchase a BOP or a CPP, you should be aware of some of the types of insurance coverage so you can talk intelligently to your insurance agent and be ready with some questions.

Liability
General liability insurance covers injuries that employees, customers, and visitors sustain at your business site.

Malpractice (or professional liability) insurance is not just for doctors or lawyers. There are malpractice policies for accountants, advertising consultants, computer analysts, financial planners, occupational therapists, and even real estate agents, for example. If you provide a service, you should have some protection against negligence claims. If you're a professional, check the local chapter of your professional association for an insurance provider. Mere mortals can get the same kind of advice from an insurance agent.

Product liability insurance protects against claims from injuries caused by things you make, distribute, or sell. If your business doesn't provide a service, you really need this protection even if your product isn't generally considered particularly dangerous. Think of that infamous scalding cup of McDonald's coffee.

Damage
Property damage insurance will reimburse the business for damage to your building and its contents (including equipment and machinery) due to fire, wind, or lightning, or for theft or vandalism.

Beyond BOPs And CPPs

There's some insurance outside the realm of BOPs and CPPs that you should consider as well.

Health Insurance
Individual health insurance is very expensive whether you're looking at traditional fee-for-service (indemnity) or managed care policies. By joining an association, union, special interest or religious group, or alumni or professional association, though, you can take advantage of group rates to members. In addition, some states have mandated the establishment of purchasing alliances that enable small business owners to pool resources to buy health insurance at group rates.

If you have more than 100 employees and provide health insurance to any of them, keep in mind that federal law requires you to offer it to all your workers.

Disability
If something should happen to you that would prevent you from running your business, would you have enough money to keep you going until you were back on your feet? If the answer is no, get a disability policy that will pay you benefits if you suffer either a complete or partial disability. Factors to consider are:

The waiting period before benefits kick in
If the policy covers temporary as well as permanent disabilities
Whether or not the policy is renewable

Life
In addition to life insurance that will pay benefits to your family in the event of your death, there are policies that will pay business partners benefits if one or the other should die.

Auto
Don't assume that your car insurance policy will cover business-related accidents. Chances are it doesn't, but you can probably buy a rider that will. In addition, if your employees drive your car in connection with your business, it's a good idea to have non-owned coverage that pays for injuries to people and property damage caused by the employee driver.

Workers' Compensation
If you have employees, state and federal regulations require you to offer workers' compensation insurance which protects you from liability for an accident involving an employee. It will pay for medical expenses and lost wages for an injured employee and, in cases of death or disability, provide lump sum payments. How much it costs will depend on the types of workers and your state's laws.

Computers
Could your business continue if your computer system was damaged or destroyed? If the answer is no, consider computer insurance. Columbus, Ohioñbased safeware insurance agency will cover your computers for theft or damage due to fire, flood, electrical surge, viruses, and hard drive failure. Although some BOPs cover computers, if your business is heavily dependent on your computer, you should check carefully to be sure the coverage is adequate. Most BOPs don't cover mechanical breakdowns, for example. And if you're home-based, don't rely on your homeowners insurance to cover the loss of your computer. Although computers are mentioned in most homeowners policies, if you read the fine print, you'll find the coverage is pretty limited. At the very least, you'll need a rider to be sure you have enough insurance.

Insurance for Home-Based Businesses

Most homeowners policies don't cover business claims. Usually business equipment, supplies, and inventory are excluded, for example. But unless you're producing hazardous materials, storing large amounts of inventory, or have lots of employees and/or customers going in and out of your house, you can either get an inexpensive rider that will do the trick or buy a BOP.

How to Find and Choose an Insurance Broker

Insurance brokers represent business owners and charge fees to find and negotiate the right amount of coverage at affordable rates. A good broker will sit down with you and take the time to understand your business, assess your needs. How to find such an animal? It's mostly word of mouth and networking. Talk to other people in similar kinds of businesses and consult trade and industry associations to which you belong.

Where to Buy Insurance

Insurance rates vary widely for identical coverage, so you should do some shopping around before you sign on the dotted line. In some cases, for example, having all your policies with the same company could save you money. Other companies might even charge you more for multiple policies. One way to save money on insurance is to buy it through group plans offered by trade associations or other organizations.

Self Insurance

If your cash flow is tight and you're looking for ways to cut down on the cost of insurance, consider self-insurance as an alternative to property insurance. The way it works is like this:

Set aside the amount of money that you would be paying in premiums to cover the expenses that would incur if you were to experience some sort of emergency.

This works best for auto theft or fire, for example, where the potential loss is finite and somewhat limited. Substituting self-insurance for liability insurance is not recommended because a single lawsuit could be devastating to a small business.

The major drawback to self insurance is that if you need to draw from a pool of money to cover the cost of an emergency before there's enough in there, you're in big trouble. Before you implement a plan like this, you have to decide if the risk is worth the gamble.

Susan Kushnick is a business writer, editor, and researcher based in New York. She has contributed material to If You're Clueless About Starting Your Own Business, The America Online Insider's Guide to Finding Information Online, and the upcoming Kinko's SOHO Sourcebook.

Insuring the Bottom Line: How to Protect Your Company from Liabilities, Catastrophes and Other Business Risks, by David Russell
The Buyer's Guide to Business Insurance, by Don Bury & Larry Heischman
101 Ways to Cut Business Insurance Costs Without Sacrificing Protection, by William Stokes McIntyre