NEW VENTURE GUIDE
by the UALR Arkansas Small Business Development Center
This is a broad topic and cannot be fully addressed here; however, we can identify some areas that you should consider carefully and refer you to sources of additional assistance. Insurance needs can be divided into essential coverages and desirable coverages. Though these concepts are fully discussed in articles 6018-6021 in our online BizFacts service, they are summarized below:
ESSENTIAL COVERAGES
Fire Insurance: In the event of a fire, your company must have the ability to replace lost assets in order to continue operation. Other hazards, such as windstorm, hail, smoke, explosion, vandalism, and malicious mischief represent similar risks, and can be insured by inclusion with fire insurance coverage for a relatively small fee.
Liability Insurance: Any incident involving your company, its facility or vehicles, its products or services, or its personnel, and resulting in either bodily or personal injuries can be the subject of a suit involving your company (and you). The losses resulting from such a suit can range from time loss and court and attorney fees to large damage awards. Liability insurance protects you from most of these costs. Using a competent agent who is well versed in the complexities of this area is critical. Because one lawsuit over a seemingly trivial matter can result in a damage award great enough to destroy your company, having liability insurance with generous policy limits is a must.
Automobile Insurance: In Arkansas, any vehicle is required to carry liability insurance or other proof of financial responsibility. This, of course, applies to any vehicle used for your company's business activity. When any employee or subcontractor uses a vehicle on your behalf, you can be legally liable even though you do not own the vehicle. As with other assets in the business, in the event the vehicle is damaged, you need to be able to pay for its replacement or repair. Collision/comprehensive coverage will facilitate this. If the vehicle is financed, the lender will usually require this coverage.
Workers' Compensation: Federal and common law require that an employer provide employees with a safe workplace, hire competent fellow employees, provide safe tools, and warn employees of an existing danger. If an employer fails to provide these, he is liable for damage suits brought by employees and he may be subject to fines and prosecution. If your employees are covered by workers' compensation insurance, their remedies against you are limited to those prescribed by workers' compensation regulations. In other words, having workers' compensation insurance on your employees will protect you from substantial liability suit awards. This insurance is sold by commercial carriers, but the rates are strictly regulated by the state. It is critical that you use an agent who is knowledgeable of the risk categories and how they apply to your employees. In Arkansas, it is best to assume that your business will be required to carry this insurance unless your insurance professional advises you to the contrary.
DESIRABLE COVERAGES
Business Interruption Insurance: In the event your business is forced to suspend operations temporarily because of fire or other similar circumstance, this type of insurance can provide funds for salaries to key employees, taxes, interest, utilities, and even lost profits. Similarly, if your business is interrupted because of a fire or other peril affecting a supplier or customer, that interruption can also be covered. With business interruption insurance in place you may be able to keep key employees and hasten the return to business after a fire or other insured peril. There are variations of this type of insurance and the extent to which it will cover your risks.
Employee Benefit Coverages: Insurance coverages that can be used to provide employee benefits include group life, health, and disability insurance and retirement incomes. Key employee insurance protects the company against financial loss caused by the death of a valuable employee or partner. Because of increasing health care costs, group health benefits have become a major job benefit for many companies. Having a good group plan may enable you to keep qualified personnel even when they may be able to obtain higher paying jobs elsewhere.
Crime, Glass, and Rental Insurance: These types of insurance cover special risk situations that may apply to your business, depending on its location, environment, and facility. They should be discussed with an insurance professional to determine their applicability to your situation.