• Products and completed operations liability insurance is designed to protect companies in case of lawsuits over defective products. "You can become bankrupt if someone sues you over that," Mr. Fortun says, adding that companies should buy liability coverage that equals 20 percent to 25 percent of their asset size.
• Worker's compensation coverage. Most states demand that all companies with more than a certain number of employees (three to five) carry worker's comp. The policy covers employees hurt on the job, and cost varies depending on the industry and the company's injury record.
• Business interruption coverage allows companies to stay in business and continue to pay their employees while machinery or equipment is replaced and the building is rebuilt following a fire or other disaster. "The insurance will pay for new products and machinery, but it will take at least six months to a year to get the permits and rebuild," Mr. Fortun notes. "It has been proven that most businesses that don't have this protection will never go back into business."
Mr. Fortun advises business owners to buy enough interruption coverage insurance to cover an extended downtime.
"You want to be able to keep your employees," he stresses.
• Commercial auto insurance is for companies that have trucks or sales vehicles that carry products. Over time, an auto accident is quite likely, and the business needs to plan for it, says Manny Martinez, team leader for Golden Eagle Insurance, a subsidiary of Liberty Mutual Agency Markets that sells commercial insurance in California. An ordinary auto policy covers the vehicle and drivers or passengers, but not property inside the car, according to Ms. Koontz Traverso.
• Employee practices liability coverage. Mr. Martinez says companies must always plan for the unexpected, including sexual harassment, discrimination, and shareholder lawsuits. That's where employee practices liability coverage – and director and management liability coverage – come in. "This is part of the basic insurance that every company should have, whether it's a mom-and-pop shop or a Fortune 500," he maintains.
"BOP" Packages: For Smaller Companies
To minimize insurance costs, some companies can consider buying a Business Owners Policy (BOP) – a package that includes property and liability insurance, and is usually reserved for smallish, homogeneous operations such as a franchise operation or retail store.
Other types of insurance help a company but don't protect its assets. Health coverage is an important tool for employee recruitment and retention, and can be an important lever on absenteeism and productivity. With regard to disability coverage for non-work related loss of income, especially important for small business CEOs, "What you want is an income replacement policy," ideally one that would cover you until retirement age and is noncancelable or guaranteed renewable, advise financial experts Laura Castaneda in Philadelphia and Laura Castellanos in California, co-authors of The Latino Guide to Personal Money Management.
Overall, to obtain the best price and package, CEOs should plan to shop around or go through a broker who sells policies from various underwriters. "A lot of single-company insurance producers make you feel there is only one choice," Mr. Varas says, "but there are many choices."
Then, when negotiating for a policy, discuss all your potential risks with the insurance broker or company, Mr. Martinez says. "The more claims you have, the more at-risk the company is and the more the cost is likely to be."
Finally, companies can determine how much coverage to buy based on their revenue growth, according to Mr. Varas. That way, he says, "you'll never purchase more than what you need, as long as you're very clear on your growth."
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