How much insurance does a business really need, anyway?

Jason Mayer, marketing manager for Edgren Hecker & Lemmon Insurance (EHL) in Poulsbo says the most important thing a business owner needs is a good agent. “It should be someone who tracks and understands the insurance industry. Things change very rapidly,” he says.

Legally, a business may not be required to have insurance. Lending institutions may require liability and other insurance.

But the business owner needs to understand that insurance is intended to prevent the financial catastrophe that could occur without it. Insurance ought to put you right back where you were before the bad thing, whatever that might be, happened, so you can be financially whole again.

There are various types of insurance, and which ones and how much you need depend on the business itself.

The first type is property. A business should insure at replacement cost its building, business personal property, and business income and extra expense. Owners need to factor in the cost of contractors on a fast track when considering replacement value. The insurance agent and the lender can assist with an accurate replacement value.

Business personal property is inventory, including products, plus nearly everything the business owns, such as desks, computers and so forth.

Business income should be insured to give you the income you would be missing while rebuilding after a disaster. Extra expenses will cover those things needed on a temporary basis, such as a short-term business site, plastic tarps where the roof has a hole, and so on.

Liability insurance is essential. The business owner and agent need to analyze the specific industry. The cost may be based on payroll, sales, subcontractor costs, geographical area and risk factor.

A claim against your business cannot occur without a lawsuit finding the business liable for damage. Many businesses choose to settle out of court to try to avoid some of the steep legal costs and time diverted from work. In a litigious society, Mayer believes tort reform is badly needed.

There will be a dollar amount for a single liability occurrence, and a maximum annual amount that can be paid out. A business may want an umbrella policy for additional coverage, including in foreign countries.

Auto insurance is one of the greatest needs, says Mayer. Even if the business does not own a vehicle, there needs to be insurance protection. If using your personal auto on business errands, some companies will deny a claim against a personal policy. “Every business needs hired and non-owned auto insurance,” adds Mayer.

Another type of insurance is called inland marine. The odd term is reminiscent of early civilization, where reducing loss may have meant sending cargo downriver in three canoes instead of one, Mayer says with a smile. Today, it covers such things that may not be included under business inventory. Examples include fine art, tools and other items.

Life insurance on key employees whose loss could drastically impact business income is also a good idea.

Health insurance for employees is not legally required. However, Mayer says it is one of the benefits that quality employees seek when looking for work, so it’s an important consideration. Medical benefits, along with sick leave, can keep your workforce healthier and more productive, too.

EHL is currently conducting monthly seminars on various insurance topics to educate the public on the value of insurance.