Local insurance professionals agree that all business owners – whether they operate a restaurant, an office, a boutique or even a home-based business – should have liability, property and business interruption insurance coverage.
Entrepreneurs should consult with an insurance agent about what types of coverage they need as soon as they have identified a model for their new business, Derek Twells, a Farmers Insurance agent in Long Beach, told the Business Journal. “It will help them start to plan for that line-item expense, which every business needs to properly protect themselves,” he said.
The sooner a businessperson consults an insurance agent about what types of coverage are needed for their business the better, says local State Farm Agent April Showers. (Photograph by the Business Journal’s Larry Duncan)
April Showers, a State Farm insurance agent, also recommended consulting about insurance as soon as possible. “The reason is it’s something you need to include in your budget,” she said. Plus, she noted, it is more difficult for certain types of businesses to obtain insurance – so the earlier those businesses start looking into coverage, the better.
“For example, State Farm won’t insure if you are manufacturing your own product,” Showers said. “I have a family friend . . . and I can’t insure her business because she makes her own soap. It’s a huge liability if someone has an allergic reaction, and that reaction can lead to death.”
All businesses, regardless of type, should obtain general liability insurance, according to Kelly Williams, owner of Kelly Williams Insurance, established in Long Beach in 1895. “Usually to move into a space, somebody needs the general liability coverage,” he said. General liability provides coverage for accidents that occur on business premises, as well as certain types of business losses.
Liability insurance covers costs associated with litigation, Twells explained. “Typically, the liability component is the least expensive part of a policy, so you should buy as much liability coverage as you can – especially in California, because we’re a very litigious state,” he said. “That’s why liability coverage in my opinion is truly one of the most valuable components in a business policy.”
Twells said he is increasingly seeing business owners have to rely on liability insurance because people are becoming quicker to file lawsuits. Some lawyers even specialize in pursuing litigation against businesses, he noted.
For owners of businesses that provide advice – for example, doctors or financial advisors – professional liability insurance is key, according to Williams. “For example, if you’re in the real estate business, you have to have a license for that,” he said. “Someone is paying for your expertise. If they think you gave them poor advice and it caused them some sort of financial damage, that’s professional liability.” This type of insurance is also commonly referred to as errors and omissions coverage.
After liability coverage, the second most important type is property insurance, according to Twells. “Whether it’s just an office environment or if it is a wholesale distributor of some kind of product, they want to insure property that they could lose or that could be damaged,” he said.
Business interruption insurance, which covers loss of income in the event that business operations are halted, is also important for all types of businesses, insurance professionals agreed. “If your business is destroyed or burned down and you no longer can conduct business, you want to make sure a solid policy has loss of income [coverage],” Twells said. “Most policies will [cover] loss of income up to 18 months.”
In addition to these key types of coverage, all businesses with employees are required to retain workers’ compensation insurance, which covers wages and medical benefits for employees injured on the job. Williams recommends any businesses with employees also obtain employment practices insurance, which protects against litigation related to claims of harassment, wrongful termination and similar issues. “If they sue you, you have defense costs and indemnity for any sort of charges, minus the deductible,” he explained.
Businesses may also want to look into liability insurance for cyber exposure, Williams said. In recent years, cyber hackers who are able to lock down computer systems or hold sensitive private information hostage have targeted businesses and organizations. The hackers then demand delivery of a ransom to return the information or repair system functionality. Cyber exposure liability insurance protects business owners from bearing the full brunt of such a cost.
While specific types of businesses require different areas of coverage – businesses with a fleet of vehicles need commercial auto insurance, for example – most insurance companies have pre-packaged policies for different business types, according to Twells. “They cover the crucial core bases that any business would need in a specific industry,” he said.
Businesses that contract with individuals or businesses for services and require a state license are typically required to have certain types of insurance, Showers pointed out.
Owners of home-based businesses often do not think about insurance, but they should, Showers said. “Home-based business insurance is pretty cheap. I think our minimum premium at State Farm is $320 for the year,” she said. “A lot of times home-based businesses do events, like they go out to different farmers markets or festivals, so [the policy] will cover them away from the home,” she noted. “It will cover if they have equipment that they use in homes. And it covers their liability in the business.”
Showers recommends reviewing insurance policies annually because some are rated based on annual receipts. “Depending on if you made more or less, you want to relook at it because you could save a little bit more on insurance or it can cost you a little bit, or you need to get more insurance,” she explained.
Twells also recommended reviewing insurance policies each year. “Any business owner needs to make sure that the person representing their business for insurance is proactively sitting down with them at least once a year to talk about what changes should be made in order to protect them,” he said.