As the second-costliest hurricane in U.S. history, Hurricane Sandy left thousands of homeowners and business owners trying to rebuild their properties and businesses. But natural disasters aren’t the only adversities facing startup business owners and threatening to bring an end to their dreams of independence.
According to a report from the research firm Ponemon Institute, the vast majority of companies are significantly under-insured for cyber risk, even though 80 percent of companies are likely to suffer a data breach within 12 months. There are myriad other risks involved in business startup that you must plan to protect yourself against.
How can you be sure your new business is well protected? Assessing risks in your business is a three-step process, according to FEMA’s Ready.gov Risk Assessment checklist:
- 1. Hazard identification: Assess potential hazards that could affect your business. These could include fire, hazardous materials, workplace violence and cyberattacks.
- 2. Vulnerability assessment: Which assets are at risk? People, property, equipment, the environment?
- 3. Impact analysis: What is the possible damage? Consider casualties, property damage, lawsuits and financial loss.
Once you have identified potential risks and their impact on your new business, you’ll have a better idea of what type of business insurance you need.
Business insurance falls into five basic categories:
- 1. General liability insurance covers your company against accidents related to your product or service. Check to see if you need specific liability coverage for your industry. Consultants and accountants, for example, often obtain “errors and omissions” insurance to protect them in case a client sues them because they made an error or gave bad advice.
- 2. Auto insurance is essential if you have company cars or delivery vehicles that you or your employees will drive on business.
- 3. Property and casualty insurance covers your business against losses from threats such as fire and burglary. Depending on where your business is located, you may need extra coverage for floods, earthquake or other risks that are not included in the basic business policy.
- 4. Umbrella insurance protects your business against liabilities your other policies don’t cover, or if someone sues you for more than your other policies will pay.
- 5. Worker’s compensation: If you have employees, you are required by law to also have Workers' Compensation Insurance, Unemployment Insurance Tax and, in some states, Disability Insurance, which requires employers to provide partial wage replacement insurance coverage to their eligible employees for non-work-related illness or injury.
Besides the standard types of coverage, you might also want to protect your business with the following coverage:
- Cyber liability insurance provides financial compensation to help you address immediate customer and business needs, such as those that result when your in-house IT network goes down. You can also buy cyber insurance to cover your business in the event of a lawsuit brought by a customer or partner for a data breach arising from your business's actions or negligence.
- Business interruption insurance pays for your business’s expenses and income if your company is unable to operate due to a disaster or other covered event, such as Hurricane Sandy.
- Life insurance on the business’s founder is often required if you’re trying to get a bank loan, but it’s a good idea even if you’re not. “Key man” life insurance on any business partners, key stockholders or other crucial employees pay the business money to buy that person’s share of the business back if he or she dies.
- Disability insurance replaces a percentage of your salary if you can’t work for a period of time due to an injury or disability. Closely related, “business overhead” insurance covers your business’s overhead if you can’t work for a period of time.
Not every business needs all of coverages, but a good insurance agent with experience in small businesses in general and your industry in particular can help you choose the right coverage to be sure you’re protected.