How Insurance Helps Keep Your Business Going

Disability is important to many companies, especially one where the business owner is the main money maker. For example, a dentist or a doctor both may lose their practices if they were sick for six months. Many owners mistake Workers' Comp as a viable replacement, but workers' comp is only for on the job injuries or sicknesses.

If you come down with cancer and its not work related, then there is no coverage. under workers' comp. In addition, claims where an owner claims workers' comp against himself are looked at in greater scrutiny because there is more of a chance of fraud. Also, workers' comp only pays about 2/3 the wage you pay yourself. Many owners will pay themselves a low wage, but get most of their income from draws from company profits. Those draws won't be considered as part of the wage.

In addition, going without key coverages like workers' comp and liability insurance is a good way to get shut down as well. Workers' Comp is mandated by the state if you have employees, but many business owners tend to go with out it. If one is caught without it, your business could get shut down until you can prove you have it. Also, there is a fine for $1,000 per employee up to $100K.

Without the proper liability coverage, you can get sued once and lose everything on just paying legal bills. Insurance is the first defense from lawsuits. Even if you have an LLC to protect your personal assets, if the business is your main stream of income you could end up losing everything anyway.

Lastly, business income is a great way of protecting your company in case of a covered loss. Business Income is an important coverage that every company should have that can pay your lease, expenses, overhead, and even key employees in some cases. See my blog on business income for more information.

Insurance 101 for a New Business

Insurance is there to get you back where you were in case of an accident. In this litigious society, insurance is your first layer of protection against a law suit arising from an unforeseen accident. There are many types of insurance. Depending on your business you may need one or more policies.

General Liability - This is sometimes called the “trip and fall” policy because it is for third party claims when some one is injured. A third party is anyone that is not involved in the company including customers and the general public.

This covers your business, your work, and your even products after the products are in your customers hands.

Generally, the first time a business gets insurance is because a vendor or a landlord is requiring it. The standard requirements
$1,000,000 per Occurrence
$2,000,000 General Aggregate
In English this means: $1,000,000 per accident and $2,000,000 per year.

One should ask to get the insurance requirements in writing, so you can make sure you fulfill all of them. Many times these requirements are written into the lease or contract in its own section. Give this information to your insurance agent so he can get you the correct coverage to fulfill your lease

Workers’ Compensation - This is the second most common policy as it is mandated by the State of California and most other states to any company with employees. If an employee gets hurt during the course of work, workers’ compensation pays for the workers’ injuries and lost wages.


Without workers’ compensation the employer can become personally liable for employees injuries. In addition, the Department of Industrial Relations can put a stop order on your business and fine you $1,000 per employee.

Professional Liability – This is an important coverage if you are a consulting or giving professional advice. This is also known as Errors & Omissions insurance and Malpractice in the medical field. Consultants, technology professionals, lawyers, accountants, bookkeepers, and other professionals should all carry this protection.

Make sure that you understand the insurance you are buying before signing anything. An insurance policy is a contract and may require you to have certain protections in place in order for you to be covered. Make sure to discuss with your agent your specific needs based on your specific risks in addition to contract requirements from your vendors.