What sorts of insurance coverage do you require? Well that depends on several different factors. First, there is the size of your small business and how it's organized. Is it a one man sole proprietorship or a 50-employee corporation. Next, you have to take into account how you pay yourself and your employees. Do you pay a salary? Commissions? Then you require to think about your small business' location, your exposure to liability or law suits and whether your small business sells products or services.
Things to ponder:
Heaven forbid, but do you have more than enough insurance to protect your spouse and children? Why is this so important? Well, if you have a small service oriented business, it will be worth $0 when you die. Doctors and lawyers are the best example of this because when they pass away, the spouse can't sell the service or the clients (the real meat of the small business.) All they can sell is the equipment that was used for the small business. If you can predict when you might die, you could sell it ahead of time. But that's not very likely, so you and every small service business owner should make sure that you protect your family with at least seven times your gross income. So, if you make $100,000 per year then you should have over $700,000 in insurance.
But say that at the time of your demise, you want to have a family member take control of your small business. Well, there are two questions that you have to ask yourself. One, are they capable of taking over and, two, are they licensed?
What happens if you're not capable of running your small business because of an injury or a debilitating illness? Are you covered with enough disability insurance? For a stipulated period of time, you will be paid approximately 60% of your income when you have disability insurance. Depending on whether you claimed the premium as a business expense or not, your benefits might be non-taxable.
Even more important is your answer to this question: Do you have "business overhead insurance"? Who will cover the costs of running your small business (utilities, insurance, salaries) while you're out of commission? Your small business overhead expenses will not be covered by your disability insurance unless you include it as an add-on.
Do you have business partners? If so, do you have a "Buy and Sell Agreement"? Should your partner die, you will be protecting your interest in the business. Here's a great example of this: your partner dies and his wife wants to claim her share of the business. What if your partner's relatives have no idea how to operate the business? Would they be asset or a liability? Well, if you have this type of insurance coverage, you could avoid all of this interference by outside parties by simply buying out your partner's share of the business.
Do you have "disability buy-out coverage"? What would you do if a partner becomes severely disabled? How would you feel if you had to keep on paying your partner for years to come when they cannot do any work because of their disability? After a period of time, this type of coverage would force your disabled partner to sell you his share of the business, based on a previously signed equitable agreement.
Of course, it's entirely possible that none of these problems may ever come up but it's your small business after all. Decide which sorts of coverage you deem most important...then speak to a professional who can give you the sorts of coverage you require to protect your enterprise.
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Ed Brancheau created The Bank of Green to advise small businesses about subjects like small business auto insurance and to help individuals build wealth through their mortgage.
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