Without the right insurance—or with too little of the insurance you do need—you could be at great personal risk from the costs of a lawsuit, judgment, or in the event of an unforeseen emergency or disaster. To help ensure you obtain the proper coverage, this series discusses the 3 key steps involved with choosing the right business insurance for your startup.

1. Understand the role of business insurance

Business insurance is your first line of defense if you are sued by a client or customer, a team member, or vendor. It can also allow your company to recover and rebuild if it’s ever affected by a natural disaster or other potentially ruinous event. That said, insurance is actually about empowerment, rather than fear.

Empowerment comes from the knowledge that you have the right insurance in place, so if something does happen, you’re going to have the legal support you need (paid for by your insurance company) and be able to pay any judgment against you. Accidents happen, and insurance should be looked at as a supportive resource to allow you to take more risks.

Remember, anyone can file a lawsuit at any time, for any purpose. Even if you’ve done nothing wrong, you can still be sued. And if you are sued, you will have to hire a lawyer, likely at a minimum cost of $10,000 just to defend the action on your behalf.

With the proper coverage in place, however, your insurance policy will cover your legal bills and court costs as well as hire you an experienced lawyer, which in itself offers you huge peace of mind, especially in today’s highly litigious society.

2. Know what coverage you need
There are numerous types of business insurance available, some of which are a must-have for nearly every business, and others you might not need. The type of coverage you require will ultimately depend on the specific risks your company faces and its assets, so you should meet with us to identify what your particular business should have in place.

In the meantime, practically every business will benefit from the following types of insurance coverage. And remember, make sure any liability insurance you purchase will cover hiring legal support in the event you ever face a lawsuit. If not, the policy is most likely not going to be all that valuable.

General liability insurance: General liability covers lawsuits initiated by third parties for injuries and/or property damage related to your business. Such coverage is needed regardless of whether you are found at fault, since the legal expenses alone can cripple your business.

Commercial property insurance: If you rent or own office space, this policy will cover damage to your property due to fires, storms, theft, and other events. If you work from home, your homeowner’s policy might not cover business-related liabilities, so in that case, you’ll need home-based business insurance.

Professional liability/malpractice insurance: Also known as errors and omission insurance, this covers lawsuits alleging your professional services caused a client to suffer damages, arising from actions like negligence, mistakes, and violation of contract. Such coverage can be essential for a wide range of service-based businesses such as accountants, lawyers, medical professionals, real-estate agents, consultants, IT firms, and others.

Employment practices insurance: This coverage provides protection for lawsuits initiated by your employees. While this is an often-overlooked coverage, it’s actually one of the most important, since employment claims are the most serious threat to your business, even if you think you are the best boss on the block.

Worker's compensation insurance: If you have any W2 employees, worker's compensation is typically mandatory in most states, and it's included as part of your payroll taxes. Workers’ comp offers medical treatment, disability, and death benefits for employees. And even if your business is relatively low-risk, coverage is still needed for claims like slip-and-fall injuries and carpal tunnel syndrome.

Directors & officers’ insurance: This coverage protects your board members and executive officers from judgments, settlements, lawyer fees, and other legal expenses if they are personally sued for a decision or action they made on behalf of your company. Unlike your business, these team leaders are not personally protected by a professional liability policy. Such insurance can also reimburse your company if it pays for the defense, judgment, or settlement of a lawsuit on behalf of these individuals.

Next week, we’ll continue with part two in this series on choosing the right business insurance for your startup by discussing what you should look for when choosing an insurance professional or company to work with.

This article is a service of Erin Williams, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. 720-312-1874