So you're an entrepreneur, huh? If you're a serious player, you probably know by now that entrepreneurship isn't all ! You have to invest a tremendous amount of time and energy to execute on your business plan and get the results you desire.
As part of any plan to go full-time entrepreneur or to protect yourself if you're already one, you need to have appropriate insurance coverage. What do you do if you become injured and can't work, have an accident and need hospital care, protect your loved ones when income stops arriving and more?
Let's take a look at the most important insurance policies every entrepreneur needs to carry to reduce their risk of what can be some costly situations.
Liability--Let's start with carrying liability coverage for your business. This insurance will pay for the legal fees and support that you'll need should someone decide to sue you. It can also cover damage someone incurs while on your property or when using a product. Of course, no one ever wants to get sued but unfortunately, business owners are sued all the time.
Let's look at an example (true story). You write a really spicey blog post for your business blog and mention all the mistakes certain professional athletes have made in managing their finances. You mention a few names and someone takes it a bit personally and decides to sue you for libel. Well, perhaps you're not really at fault and their case doesn't stand much of a chance. You weren't really trying to defame someone and hurt their reputation, but again, someone got their feelings hurt. At the least, you're going to have to cover legal representation and all the associated fees. Unless business is booming, such expenses can put you under water rather quickly.
Health - Okay, now that we've covered some business protection, let's consider you and your family. Don't ever gamble on not having medical insurance. Sure, a common cold isn't going to set you back too much, but what if you break a bone, or have a more serious incident. What if you're the sole provider for your family? Not having health coverage is not only susceptible to a fee these days (under the Obamacare act), but can easily put you out of business overnight and is downright irresponsible! If you have a family with young kids, buy as much as you can reasonably afford!
Disability--Disability insurance is one that people tend to ignore or consider lower on their list of priorities. It helps support you or replace income if you're injured in an accident or experience illness for a long period of time. It can cover months or years. Keep in mind it doesn't typically replace all of your income so you'll need to make sure you're continuing to build an emergency savings account to cover the gap between income and your insurance payments.
Ryan Michler a certified financial planner that runs the blog www.wealthanatomy.com offers,
"Beyond a shadow of a doubt, entrepreneurs overlook disability insurance more than any other form of insurance. We insure our cars, our homes, our businesses, our lives, and even our jewelry but fail to insure the largest asset that we have-our ability to earn money. The odds of you suffering an injury or illness during your working years are far greater than any other potential loss. Do not overlook the importance of disability income insurance in your business plan."
Additionally, Ryanrecommends these features that are vital to purchasing the right type of disability insurance:
- Definition of Disability--Each insurance company defines disability insurance differently. Look for Own-Occupation Coverage to be paid a benefit if you cannot work in your ownoccupation.
- Waiting Period--They are different and typically 90 days before you receive income! If you want a shorter waiting period, be prepared to pay more.
- Benefit Period - Should the insurance company pay for 5 years, 10 years, or until you're 65? Just remember that the longer the benefit period, the more expensive the coverage.
- Future Increase Option - Will you have the opportunity to increase your benefit down the road as your income goes up? This option is vital if you anticipate an increase in income as it will allow you to increase your benefit without having to qualify medically.
- Cost-Of-Living Adjustment - If you're receiving monthly benefits from the insurance company because you are sick or injured, you'll want to make sure that the benefit will increase each year. Milk likely costs more tomorrow.
- Non-Cancelable and Guaranteed Renewable--Purchase a policy that cannot be cancelled by the insurance company for any reason and one that has premiums that are guaranteed to stay level for the life of the policy.
Life--Another type of insurance that often gets lowered on the priority list is life insurance. If you have loved ones that depend on your income and for you to put food on the table, you absolutely cannot ignore the need for life insurance, which is caring for your love ones needs!
Jeff Rose, author of Soldier and Finance and founder of www.lifeinsurancebyjeff.com is concerned with entrepreneurs not buying enough life insurance as one of their most common financial mistakes. Here's what he says -
Face it. $100k of life insurance is probably not going to be enough life insurance coverage to take care of the house, the cars, the kids, and all the debt that you've taken on to start your business. If something happens to the breadwinner of the family. I've talked to so many young entrepreneurs that only have a $50k whole life policy and think they are good. News flash: you are not.
Additional, Mr. Rose offers these tips to entrepreneurs when shopping for life insurance "Make sure you go with an agent that understands the needs and demands that an entrepreneur goes through. They'll be able to put together a game plan that will adjust as your business grows"
Renters or Homeowner's Policy--If you work from home and have a lease or own, having proper coverage is a smart move. If something happens to you primary residence you'll not only be without a home, you'll be without an office. Of course, coffee shops support many entrepreneurs these days, but that may not be sustainable if you have clients. Such insurance protects your personal property, computers, furniture and assets that may be critical to keeping your business running.
Umbrella--As an entrepreneur, you might take your insurance coverage one step further and opt for an umbrella policy. It goes beyond the home and auto (which could also be used for business) and provides an additional layer of protection. Incidentally, this coverage also offers protection for libel and slander (see story above). It can also be helpful when the dollar amount of other policies has been completely used up. If you have a lot of things to protect, you'll definitely want to consider an umbrella policy to round things out.
Don't make the mistake of putting off proper insurance coverage. More than your business, your family and loved ones can be impacted without having these policies in place. It's certainly easy to put off obtaining coverage when the focus is growing a business and generating revenue, but part of running a business is putting the right tools in place to position yourself for long-term success, to protect the assets you've worked hard to build and again, offer peace of mind to loved ones.