Insurance covers whatever has a value. I do not sell insurance but I am a consumer of it: in business, at home, and as a source of income. It is a monster topic with many issues. Let me share some bits that you may not have considered.
Why should your startup or new business consider insurance? If this question is a revelation to you, here’s the gist: the more you have to lose, the more diverse insurance products you should consider.
What does insurance do for you? It protects against loss. If you have nothing to lose personally or in business, then I suspect you may be running thin on insurance and keeping only the state-required minimums. (Hopefully you are not going without). If this is where you are, keep the following in mind: legal costs and interruption of your business.
If you or your business is sued on a covered claim and you have insurance, your policy will pay for a legal defense. In business disputes, legal fees mount very quickly. Quite. Legal fees can quickly be the tail that wags the dog.
Insurance allows you to continue to focus on your core business and less on the lawsuit threatening it. Insurance covers both the ultimate liability and the cost to defend the claim.
As an attorney, I consider it my duty to assume the burden of my client’s lawsuit so my client can focus his/her attention on business.
Consider this: A solo startup that is well-protected in its business organization (i.e., LLC or Inc.) could potentially risk running short on insurance when there is little to lose. As the business fills out, however, and assets are obtained (such as equipment, real property, intellectual property, copyright, patents, trademarks, etc.), or employees are hired, so should the insurance. Insurance is a hedge against unknown losses.
Some basic insurance individuals cannot go without include:
- Auto insurance. If you own a car, it’s required by law.
The minimum amount of Utah auto insurance coverage is $25,000/$65,000/$15,000. This means limits for bodily injury are $25,000 per person, with a total maximum of $65,000 per incident, and up to $15,000 for damage to another person’s property.
- Property insurance: If you own a home or any real property, it is presumably an asset that you do not want to lose. There is no sense owning property if you do not protect it from loss.
Some basic insurance a Utah business should consider:
- Auto. If your business owns a vehicle, it must insure it. If employees are required to use a car for business purposes, the business must provide insurance. Typical personal policies do not cover the business use of vehicles. Talk to your insurance agent if your business requires the use of a vehicle.
- General Liability. Every business is different and you should evaluate your risk. General liability insurance typically covers libel, slander, property damage to others, and personal injury to others.
- Business Property Insurance. This includes both real property insurance for property you own as well as renter’s insurance. Think of it as homeowner’s insurance for commercial property. It will protect your products (widgets or whatever you manufacture or inventory) and your assets (equipment, furnishings, etc.) from fire, flood, or whatever your policy covers.
- Worker’s Compensation. If you have one or more employees in Utah, you will definitely want to read the Utah Labor Commission’s Employer’s Guide. A good start from the Guide: “Businesses with no employees may not be required to carry workers’ compensation coverage. For example, sole proprietorships, partnerships and limited liability companies in which the owners perform all the work and have no employees and may not be required to have workers’ compensation coverage. Refer to Utah statute 34A-2-104.”
- Professional Liability. Some professions (doctors!) are required under Utah state law to carry malpractice insurance. If not required, you really (really) should have it. It is your livelihood at risk.
Here’s the list of optional insurance you may want to consider:
- Umbrella. This is excess insurance. Typically if your underlying policy (auto, homeowners, general) covers a claim but the claim exceeds the coverage limit, the umbrella kicks in to cover the loss up to its limit on the claim. Note: policies vary; it is up to you to read the fine print or have your agent explain it to you. I personally have an umbrella policy. It gives me a cushion if my teenager happens to cause a catastrophic accident that my basic auto insurance may fail to cover. It usually comes in increments of one million with the lowest available being $1m.
- Health and Life. Goes without saying. These topics are too big to address here.
- Data Breach. If you obtain or collect private, sensitive, or financial information from your clients, you are at risk of having it stolen by a hacker or virus. Data breach insurance covers this risk.
- Business Interruption. This is often a sub-set of a property policy. It covers your business operations and earnings in the event of a covered event (fire, flood, etc.).
- Employment Practices Liability Insurance. When you have employees, this insurance covers your management of them. It covers wrongful acts arising from the employment process. The most frequent claims include wrongful termination, discrimination, sexual harassment, and retaliation. In addition, the policies cover claims from a variety of other types of inappropriate workplace conduct such as employment-related defamation, invasion of privacy, failure to promote, deprivation of a career opportunity, and negligent evaluation. The policies cover directors and officers, management personnel, and employees as insureds.
- Directors and Officers. This insurance covers claims made against officers and directors for acts in the course and scope of their employment. You can get D&O insurance to cover nearly any business enterprise. It will cover claims arising from managerial decisions that have adverse financial consequences.
- Errors and Omissions. This is more of a subset of a policy rather than the policy itself. E&O insurance protects you against liability for committing an error or omission in performance of a professional duty. It will cover financial rather than bodily injury or property damage.
- Miscellaneous. Depending on your business or profession, there may be specialized or niche insurance to cover you. Some examples include commercial general liability (CGL) policies (often for construction businesses), lender-placed and REO insurance for financial institutions, event insurance, terrorism insurance, and travel insurance.
Insurance is very broad topic but one that you really need to look at closely for yourself and your business. If you have questions, you should ask them. There are many insurance agents, brokers, and options. I can provide some local references if you would like. If you would like more information about insurance and its intersection with the law and how it affects your business, contact me, Utah attorney Ken Reich. I regularly represent companies and the individuals and families that own them. My job is to know and understand my clients and their goals. Together with the right legal and insurance experts, I can help you get the result you want.