900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 · 215.563.0276 · Fax: 856.667.3652

Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

Insurance Needs of Start-Up Companies

Few things in life carry more risk than launching a business. The New Jersey Society of Certified Public Accountants (NJSCPA) points out that one way to minimize and manage those risks is to obtain proper insurance coverage before you officially start operating.

Find A Reputable Agent
As a small business owner, your best resource is a knowledgeable insurance agent experienced in small business. Try to secure recommendations from your CPA or business associates. Your CPA, along with a reputable insurance agent, can help you find the most cost-effective policy, an important factor since many start-ups have more cash demands than revenue. Using one agent for all your insurance needs makes gaps in coverage less likely. Another alternative is purchasing insurance through group plans frequently available through trade associations.

The insurance you need depends on the nature of your business and its inherent risks. Your task is to work with your agent to identify potential losses that would most impact the viability of your business. Most start-up businesses need, at the minimum, property and liability insurance.

Property Insurance
As its name suggests, property insurance protects your property, in addition to equipment and other assets owned by your business, from loss or damage. You will need to take a complete inventory of all your business property, determine its value, and decide what needs to be covered. Your agent can help you determine the amount of insurance you need.

Liability Insurance
Your business can be sued for something it did - or didn't do. General liability insurance protects your business from being held liable for negligence should someone get injured or sustain property damage on your premises. Liability insurance typically pays damages as well as attorney fees and other costs associated with your defense in a lawsuit. Many small businesses have difficulty determining how much liability insurance they need. Unfortunately, there is no standard formula. Some insurance brokers recommend that you base the amount on the largest liability settlement in your industry or an industry similar to yours.

Business Owner's Policy
Rather than purchasing separate property and liability policies, many small business owners combine the two elements in what's known as a business owner's policy (BOP). A BOP is often the most economical way to insure your business against a broad range of risks. Although differences exist among insurers, BOPs typically cover lower-risk businesses such as small retail stores. If you operate a construction company or a restaurant, you most likely will need a commercial policy.

Other Types
Almost everything is insurable - for a price. Here are some other types of insurance you may want to consider:

  • Key person insurance protects your business from the loss of a key partner or employee.
  • Business interruption insurance covers indirect losses, such as loss of income resulting from a direct loss like a fire.
  • Workers' Compensation covers employees who are injured on the job. State law requires Workers' Compensation insurance.
  • Loss of income insurance protects a business owner from losing earnings as the result of an event that interferes with the company's ability to earn revenue.
  • Employment practices insurance covers your company in the event of employment-related claims, such as sexual harassment.
  • Commercial automobile or fleet insurance works similarly to personal auto insurance and is essential if you have employees who regularly drive cars during business hours.

Change With The Times
Keep in mind that as your business matures, your insurance needs will change. You may retain a high-level officer or manager and determine you need key person insurance. Keep your agent apprised of changes in your business. And be sure to always maintain the coverage you need to protect the business you've worked so hard to get off the ground.

[Return to Index of Money Management articles][Home]

Money Management is a weekly column on personal finance distributed by the NJSCPA.

untitled

This site designed and maintained by the Information Technology experts at Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson & Co.

We appreciate comments concerning our website. Contact our webmaster .