© Brian Jackson | Dollar Photo Club

Do you have a little voice in the back of your head saying “Insurance”?

Everyone knows that you have to have insurance, but what do you need? You want protection for yourself, your clients want protection for their business and your business needs protection, but how is that accomplished?

As a business owner I have found it best to simplify where possible. You should look at your insurance needs in much the same way as you look at a simple car insurance policy: Liability (protecting others), Uninsured Motorist (protecting you) and Comprehensive and Collision (protecting your vehicle).

This means that there are three different types of insurance that a well-protected independent manufacturers’ representative should have. Two of these insurance policies are often overlooked, but a professional company should have them. As with all of these situations, a competent, professional insurance agent can give you advice on safeguarding your interests.

Types of Insurance

The first insurance is rather obvious. You have an office and a car. If you have an office outside of your home, visitors can be a part of your world. You must account for any liability that could happen on the property that you rent or own. You need to account for fire or water damage as well. There are levels to this — for example, water damage from a fire hose putting out a fire is considered different from water damage from a sewer backup which is different from water damage from a “flood” (water appearing where water doesn’t usually appear).

If you use your home or personal car for work, first have a good accountant. Then notify your insurance agent what you are doing because different states have different considerations for auto and “home-as-office” use. I highly recommend purchasing “umbrella” liability protection. Even if you have an LLC or are incorporated having a personal or business (or both) umbrella policy can protect you if you are involved in an accident for which you are sued for a greater dollar amount than your coverage. You may think you are safe with $500,000 of coverage, but if a judgment exceeds that amount you will be responsible for the excess. An umbrella could save you from a soaking.

This insurance is fairly obvious and is the most important because it protects you. Always protect yourself and your family first.

The second insurance that we need to talk about protects your business and you, or “the company.” An important part of your insurance plan is health, dental and vision insurance as well as disability insurance.

Disability Insurance

The odds of experiencing a house fire are one in 1200, a car accident one in 240 and a long-term care event one in two with normal life expectancy. Disability insurance helps provide you and your family money in the event of an injury or illness that precludes you working. Disability should be a part of an overall insurance plan. The odds say that you are going to need it.

While health insurance protects the “present” what are you doing to insure your future? Every business owner with a family should have life insurance. Do you have a partner in your business? If you do then you should have a well-crafted succession plan that takes into account the needs of all parties.

If you want continuation of your business should you or your partner die, a method to provide for this is to purchase buy sell insurance. Both parties buy an insurance policy. Buy sell allows the surviving partner (or others) to use insurance proceeds to fund the purchase of business interests from the decedent’s family. Generally an amount or arbiter is decided and then the proceeds from the policy are used by the survivor to buy the business from the seller (the decedent’s family). This provides for a better transition during a rough time. There is also “key man” insurance which can allow an owner to protect the company from disruption due to the death of a valued employee. The idea of insurance is to mitigate risk and to help transition situations from bad to acceptable. Life insurance is a great way of funding to make sure your “company” can survive.

Life Insurance

Life insurance on you as a provider for your family is also a necessity. The best advice is to consider how much it would cost to pay off a mortgage, the cost of a four-year college (typically factored at $20,000 per year per attendee) and between one and five years of income. “Term” insurance, the buying of an amount of insurance for a specified period of time, is the least expensive insurance. Whole life insurance is a way of accruing some cash value over a period of years without the specified end point of term. There are other life insurances that have come into the market over the past 20 years, most of them provide more investment control to the insured and can produce as an investment vehicle; however, as with all investments, they are only a part of a well-diversified portfolio. Many insurance companies and agencies have FINRA licenses and can help individuals with investment advice and needs.

Your “company” may also need workers compensation. If you have more than “you” as an employee you should check with your state to see if you need to have coverage. Failure to comply can result in fines.

Errors and Omission

The final leg of the tripod is insurance to put your customer at ease. Many businesses do not demand this form of coverage but agents who mainly sell intellectual capabilities (advice) in addition to or in lieu of hard goods will find that this type of insurance is important. It is called “errors and omissions” insurance or “E&O.”

E&O also known as “PLI” (personal liability insurance — we have a lot of acronyms) helps protect professional advice- and service-providing individuals and companies from bearing the full cost of defending against a claim of negligence made by a client, and civil lawsuit damages awarded.

This is primarily directed at consultants or advisors, however those of you advising manufacturers may be asked to carry PLI. It would be in an agency’s best interest to collect copies of insurance policies that the manufacturers they represent carry. Your best protection will be to make sure that their liability coverage extends to you. Your distribution customers may ask that this protection is extended to them as well, and that is a legitimate request that the manufacturer should honor.

In closing, the most important thing you can do to protect yourself is to find a competent agent who will look out for your best interests and have a strong business/personal relationship with your company and you. Many agents that you deal with will also have the ability to insure your car, home, life, “toys” and business. Putting these together as a package makes you extremely important to an insurance agent and will generate discounts for you that will lower your overall insurance costs.

Insurance should be a part of your strategy as you understand your needs and their costs.