What 9/10 Small Business Owners Do Not Know About Small Business Insurance!

The forms of coverage you require depends on several factors: The size of your small business, how your small business is organized (sole proprietorship, partnership, corporation, LLC), number of employees, type of compensation you're receiving (salary, fees, commissions), nature of small business (service, product), where it is located, and your exposure to liability.

Things to think about:

Do you have enough life insurance to protect your family, should you die prematurely? If you have a small service business, your small business is worth Zero when you die. For example, the spouse of a deceased doctor or lawyer can only sell the tools of the trade, not the clients (the true bread and butter of any small service business). If you can predict when you might die, you could sell it ahead of time. Simple and straightforward, every single small service business owner should have at least 7X their gross income to adequately provide for their family.

If your goal is to have a member of your family take over your small business at your demise, are they capable (and licensed) to do so?

What happens if you get ill or suffer an injury and can no longer run your small business? Do you have 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"? Of course, even when you are out of commission, your small business still wants to cover expenses like salaries, insurance and utilities. Who will cover those costs? Unless it is an add-on, your small business overhead expenses will not be covered by your disability insurance.

If you have partners, do you have a Buy-Sell Agreement? This will protect your interest in the business, should your partner suddenly die. 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? Wouldn't you simply rather buy out your partner's share of the company? Well, with this additional insurance, you wouldn't have to worry about your partner's family interfering with your small business.

What about "disability buy-out coverage"? Do you have it? If your partner was to become severly disabled, you would be presented with several problems without this particular type of insurance. Do you want to keep paying him (or her) for work he cannot do, possibly for years? You wouldn't have to worry about this situation if you have this type of insurance because your partner would be forced, based upon a previously signed and equitable agreement, to sell his portion of the company to you.

Of course, many of these situations may not occur, but it's your small business. Decide which forms of coverage you deem most important...then speak to a professional who can give you the forms of coverage you require to protect your enterprise.

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About the Author: Ed Brancheau created The Bank of Green to advise small businesses about subjects like small business liability insurance and to help individuals build wealth through their home equity.