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The Ins and Outs of Small-Business Insurance

 

If you have business interruption insurance, can it help you through the pandemic?

Business interruption insurance can cover lost income and continuing expenses while your business is closed or being repaired. It pays your bills during the interruption and any profit you would have earned. It pays payroll, too, although coverage limits vary by policy. Only about one-third of U.S. small businesses carry business interruption coverage, according to the Insurance Information Institute.

With many businesses still closed, and the ones that are open having suffered big losses due to COVID-19, insurance agents say that there’s no downside to filing a claim. Most policies require reporting losses as soon as possible. It’s a good idea to have documentation of finances from before and during the shutdown.

Many insurers are giving policyholders an extra 30, 60 or 90 days to pay their premiums without charging late fees or interest. Some agents are helping businesses adjust coverage for changes to their income and expenses that could help reduce future premiums.

There are several lawsuits active at the time of writing related to business interruption coverage for COVID-19 losses. A few states have proposed legislation to try to get COVID-19-related claims covered, even if they were excluded from the contract. That legislation is likely to face legal challenges and may take a while to be resolved, but no matter what happens, it can be worthwhile to gather records in case you end up having a claim or qualifying for another source of assistance.

Business interruption coverage is generally added to the company’s property insurance policy. Small businesses may get a business owners’ policy that includes property, liability and business interruption coverages. Some coverages can be added to a homeowners’ insurance policy and geared to the self-employed and those who work out of home-based offices.

Small-business insurance helps cover expensive damage and lawsuits from accidents, natural disasters, professional errors and workers’ compensation claims. Even basic small-business insurance can insure against things you wouldn’t be able to pay for on your own. Often, the insurances come bundled to simplify the insurance-buying process.

Most insurance bundles include:

  • General liability insurance to protect your business from the costs of bodily injury or property damage. This also helps cover advertising injury claims made against your business, such as libel or slander claims filed by a rival as a result of something you said in your advertisements. Generally, this type of insurance:
    • Protects against loss from medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments.
    • Protects against loss as a result of malpractice, errors and negligence.
    • Protects you if a customer gets hurt at your place of business.
  • Business property insurance helps protect the physical location your business owns or leases, including your tools, equipment and inventory. It also protects against damage to company property due to fire, smoke, wind, hailstorms and vandalism.
  • Business income insurance is protection to replace lost earnings when you can’t operate due to a covered event such as a theft or fire.
  • Home-based business insurance can be added to homeowner’s insurance as protection for a small amount of business equipment and liability coverage for third-party injury.

These types of insurances may not be included in your plan, but can be useful:

  • Workers’ compensation insurance provides benefits to employees for work-related injuries and illnesses. Most states require this.
  • Commercial auto insurance helps pay for work-related auto accidents if a vehicle is used on the job.
  • Professional liability insurance, also known as errors and omissions insurance, protects your company against claims your professional services or advice caused a client financial harm.
  • Cyber insurance, or data breach insurance, pays liability costs, identity protection solutions, legal fees and public relations expenses if your business suffers a cyber-attack or data breach.

Laws requiring insurance vary by state, so visit your state’s website to find out the requirements for your business. The federal government requires every business with employees to have workers’ compensation, unemployment and disability insurance.

Before you buy small-business insurance, assess your risks. Which accidents, natural disasters or lawsuits could damage your business? The National Federation of Independent Businesses provides information for choosing insurance.

Business owners’ policies include multiple types of insurance, but every type of coverage has its own limits, deductibles and exclusions.

 
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Layton Layton & Tobler LLP, CPAs
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Layton Layton & Tobler LLP, CPAs
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Las Vegas, 89101
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