Insurance is one of those things that entrepreneurs hate to think about but know they need to have. Operating a small business without proper insurance can lead to big problems if your products cause some sort of harm to consumers or key assets get damaged or stolen. Since launching my small business I have been constantly looking for different types of business insurance. There are so many options out there so I decided to write an article to help everyone out.
Most people know about the major forms of business insurance: general liability, commercial property, etc. Depending on specific industry and business type, business owners might need to supplement general policies with policies aimed to help protect businesses from non-traditional, but very real, risks.
Here are five specific, more obscure types of business insurance that can be very useful both for a budding entrepreneur, as well as the most seasoned small business owner.
Business Life Insurance
Almost every organization has at least one person who is nearly irreplaceable. Especially in a small and growing business, there might be one person acting as CFO, lead salesperson, and hiring manager all in one. Such an employee has built up an incredible store of knowledge and expertise that is difficult to replace.
As horrible as it is to think about, if that employee were to die unexpectedly, it could put the entire business at risk. Business life insurance ensures that if a key employee does die, the company will have the resources required to keep the business afloat, satisfy creditors, and find a replacement.
Income Stabilization Weather Insurance
Most people know about natural disaster policies that cover businesses in the case of hurricanes, floods, blizzards, etc. However, weather events don't need to be drastic in order to have an adverse effect on a company's profits. Retailers that depend on foot traffic can suffer from an excess of rainy days, or an especially cold winter, for instance. Companies that sell products specifically geared towards cold weather, such as insulation or snow tires, might suffer if temperatures are unseasonably warm.
Some businesses can't afford the significant loss of income that might occur from a long spell of adverse weather conditions. Income stabilization insurance lends greater stability to a business’s cash flow and allows them to make more accurate forecasts, regardless of weather conditions.
Tax Opinion Liability Insurance
Some transactions that businesses participate in can be unusual and difficult to fit into existing tax laws. Major acquisitions, re-orgs, or other changes of ownership can present complicated tax problems. Ideally, you would be able to get an advance opinion on the tax treatment from the IRS or other relevant authority, but sometimes they will be unwilling or unable to do so in the time frame you need.
Tax opinion liability insurance protects a business in case the eventual tax treatment of the transaction results in a larger than expected tax burden. This is not general a recurring policy but instead a one-time purchase in advance of a major transaction.
Home Business Insurance
Millions of people in the U.S. operate small businesses out of their homes. Unfortunately, basic homeowner's insurance doesn't cover the activities of a home business. Theft of inventory or liability related to your products fall outside the purview of the average homeowner's insurance.
You can get a rider to your homeowner's insurance that will extend coverage to some business activities, but the ideal solution is a home business insurance policy. In addition to covering basic liability and theft, it can compensate for the loss of key documents or equipment.
Cyber Liability Insurance
Almost every business these days has some sort of digital presence that could result in significant liability. Any company that collects credit card information from customers or even just has a database of personal information for leads could find themselves on the wrong end of a lawsuit if that data gets stolen. Think about the hot water that Target, Home Depot, and other big companies have found themselves in recently after their networks were hacked.
Even if customer information doesn't leak, certain cyber attacks can cripple your internal network and severely hamper productivity. It's estimated that a cyber attack on a small business costs hard working entrepreneurs nearly $9,000 an incident.
Ransomware is a type of cyber attack that shuts down a business' computer system until money is paid to the hacker. This is also several types of cyber liability insurance’s that can protect a company against these types of attacks and other issues related to a company's website, payment system, and internal network.