Small Business Insurance

Small Business Insurance
By J. Stephen Pope

If your

business runs into serious difficulty, will it bring you down too? For example, what if one of your employees got involved in a serious car accident while working for you? Will the resulting lawsuit bankrupt you personally?

1. Obtain Adequate

Insurance Coverage

If someone slips on the sidewalk of your home and injures himself, he could sue you for damages. Your tenant or

homeowner’s policy may cover you for liability in such an event.

However, what if it is your customer who falls on his way to visiting your

home-based business? You will need an extra rider on your house insurance to cover such incidental business use.

If you use a

car for business use, insure it for such. Some people think that they are being clever writing off automobile expenses for income tax purposes but at the same time not informing the insurance company that the car is being used for business.

This is false economy. If you ever get into an accident, police and

insurance investigators will certainly find out that you used the vehicle for business purposes. If you were not paying for business coverage, why would the insurance company cover your claim?

As well, what do you think an income tax auditor would think of your claimed

business expenses on the vehicle when your insurance policy indicates personal coverage only?

Consider obtaining product

liability insurance. This applies not just for any products you manufacture but also for products you sell that are made by others.

2. Incorporate Your Business

Insurance may give you some protection against loss. However, you may suffer business losses and lawsuits that may not be covered by your

insurance fully.

Even though you may own the corporation, if the corporation operates the business, it is the corporation that will be sued or suffer loss.

If, for example, the corporation had severe

business losses resulting in debts that could not be repaid, the corporation would be insolvent. You, as a shareholder, would lose your investment in the company but would generally not be responsible for any of its debts. Thus, you would not have to sell your home or other personal assets to cover the corporation’s liabilities.

On the other hand, there are cases where directors of a corporation can be held responsible for

liabilities if they didn’t act responsibly. You can’t hide behind a corporation, commit criminal acts and expect to escape accountability.

3. Protect Yourself With Legal Agreements

Properly drafted written agreements can protect you in many ways. First of all, they can sometimes prevent misunderstandings that can lead to legal problems. Secondly, they may limit your exposure to lawsuits and losses.

A special area to watch out for is the Internet. There are many laws that impact on

websites including matters affecting children, privacy, earnings claims, and unsolicited e-mail ("Spam"). Certain agreements and notices on your website may help to protect you.