If you have always though of business insurance as an annoying necessity to protect you from liability or property damage, you should take a closer look at some of the fascinating ways insurance can keep your business going in times of trouble or transition. Here are three smart options to consider as you review your business insurance coverage.
1. Business Interruption Insurance
Even if your commercial property insurance covers the cost of rebuilding and re-equipping your facility following a disaster, you may still find yourself hurting financially due to serious interruptions in your company's ability to conduct business as usual. You can protect yourself against this pitfall by making sure you add a business interruption insurance provision to your commercial property or comprehensive business insurance package. Business interruption insurance cushions your company against a wide range of problems that could otherwise contribute to serious economic bottlenecks, including:
- Interruptions due to relocation or government closure of damaged property
- Lost (projected) profits
- Training costs associated with any new equipment that has to be purchased
- Operating costs that require ongoing funding
- Any other reasonable operating expenses not covered by a conventional commercial property policy
Business interruption insurance begins paying on the day of the disaster and continues to provide essential coverage until your business is good as new again. While the possibility of ever needing it may seem remote, give this provision some serious thought -- because when and if that awful day comes, business interruption insurance could ultimately make the difference between opening your doors again and keeping them shut forever.
2. Key Person Insurance
Many businesses owe a great deal of their success to a particularly innovative or energetic individual, whether it's a dynamic sales executive or the founder of the company itself. If such an individual in your company were to die, you might have to launch an exhaustive (and expensive) search for someone capable of filling those gigantic shoes. In the worst-case scenario the business might even close, a process that can be extremely messy if a controlled shutdown isn't financially viable.
Your business can safeguard against these scrambles by taking out a life insurance policy on the key person, with itself as the beneficiary. If that unexpected exit occurs, the key person insurance benefits can be used to fund a headhunting campaign, keep the money flowing during the transition or facilitate a graceful withdrawal from the marketplace.
One potential downside to key person insurance is the fact that today's workers aren't as likely to stay in the same position at the same company for decades as they once were. This means you could continue to pay premiums on a "key person" who is alive and well long after they've moved on to another workplace. You can avoid this scenario by choosing a relatively cheap or transferable term life policy for your key person insurance.
3. Buy-Sell Agreements
When you share ownership of a business with another individual, you need to think about what would happen if one of you were to die. If your business partner dies, that share of the business could go directly to a spouse or other family member who lacks the skills, availability or desire to assume an active role in the company. The same situation might apply to your own beneficiaries should you die first. That's why you need to create a buy-sell agreement that enables one partner to buy out the beneficiary's interest in the business—and a life insurance policy can fund that transaction.
One typical buy-sell agreement strategy for a small business is called a cross purchase agreement. In this setup, each business partner is the beneficiary of a life insurance policy on the other partner. The survivor then uses the death benefits to buy out the dead partner's share of the company. Always take out a permanent or "whole life" policy for a buy-sell agreement, since term life policies expire after a set number of years, and make sure the coverage amount can be adjusted to accommodate changing economic times.
Business insurance is more than just a painful but necessary monthly premium; it's a useful tool that can take many forms to help your company survive and thrive. Review your current coverage with insurance agents through resources like Matt Roenker Insurance Agency.