As an entrepreneur, you may be eminently cost-conscious and looking for any way to keep your costs down, but as successful and seasoned businesspeople have learned, cutting costs by nixing business insurance is a bad idea. It is, in fact, a vital and critical component in building a successful, sustainable business.
Having the right coverage at the crucial moment can protect your startup from sudden and imminent demise. Here are 5 real-life cases where proper coverage can make the difference between the continuation of a company and the end of the road:
1. Your data or files go kaput
It happens. Drives burn out and bad code gets through your virus and malware protections. What do you do when important data or files get compromised? Yes, cloud computing has mitigated some of the anxiety out of having only one copy of a file stored in a single location, but remember that proprietary information may not be completely secure when accessed over remote servers.
Many business owners’ insurance policies may cover the property side, meaning equipment (including servers, computer terminals, screens, and laptops) and media (the physical disks where data is stored), but keep in mind that only Electronic Data Processing insurance can help with the costs involved in recovering lost data.
2. Your business location is burgled or damaged
It can happen to your startup: companies are four times as likely to get burgled than homes. What happens to a business when equipment or inventory is stolen or damaged? In the best case scenario, if a company has appropriate coverage, insurance provides payment to allow the replacement of property. In the worst case, this type of trouble can spell the end of the road for a business without insurance coverage.
Theft, fire, flood, and other perils can bring your business to a standstill, but appropriate property insurance coverage can lessen the blow when these hazards occur. Business interruption insurance, which helps with payroll, bills, and lost profit, can also help you keep your team together while you regroup from misfortune.
3. An employee is injured or becomes ill
There are two policies that can help you out when staff members face health challenges. Workers’ compensation insurance, which is mandated in most states whenever you hire an employee, provides protection that can help employees return to work in better health after a work-related injury or illness.
The second policy, key person insurance, provides coverage when your business depends heavily on the specialized skills or knowledge of one or a few members of the team. This type of insurance will help companies weather the disturbance caused by the the temporary or permanent loss of a crucial member of team due to prolonged illness or even death.
4. A customer or visitor gets injured on the property where you conduct business
You can take every precaution, but you can’t plan for missteps. Unfortunately, the unexpected does happen. You might have prospective employees or investors visiting your workspace or a tradesperson in to the office repair a leak or paint a wall and then the unthinkable happens: someone gets hurt.
This is where appropriate insurance coverage with a general liability policy in place can make the difference between full steam ahead or a sudden unplanned detour. In either case, you can turn it over to the insurance company, send flowers, and return to your primary mission without having the worry and stress of figuring out how you’re going to pay medical bills on top of all your other concerns.
If you run your startup from home, please note that your homeowner’s or renter’s insurance probably will not cover you in this instance, while a business owner’s policy will help you cover all your bases.
5. A client decides that your work did not fulfill contracted obligations
You may have worked with a client for years or it could be your first project, but all your efforts to be attentive can backfire and suddenly your client decides that your company is the enemy.
With errors and omissions or professional liability insurance, once you have exhausted all reasonable means of satisfying your lawful agreements, you can let the client choose the course of action and know that if they do choose to name you or your company in a suit, your insurance company has your back.
Don’t assume that your startup is exempt from these situations. Or that business insurance isn’t essential. It’s Murphy’s Law, isn’t it? If you don’t have insurance, something’s bound to go wrong, but if you have it, everything will come up roses.