The Importance of Insurance for Business Owners

Business insurance covers a wide range of options for every company, large or small. Tailored policies can meet the needs of the self-employed and those who employ a small number of workers.

Specifically, liability insurance is critical to every operation for protection from losses or negligence. Employee insurance, which includes health and dental policies, is also a benefit for many employers in hiring and retaining a qualified workforce. If you're running a small business, you will want to become educated on the different types of insurance to learn what you need.

Liability Insurance

Every business should have a liability insurance policy in effect. Unfortunately, it’s often not until a legal problem arises that many business owners realize the importance of insurance. Many insurance providers offer several types of policies, which cover a range of services and products.
 
General liability insurance is the most common form, although general policies often exclude many actions. General liability insurance serves to protect businesses from lawsuits based on real or perceived injury or damage caused by the owner or an employee in the course of doing business. This type of insurance also covers legal fees.
 
Most commonly, liability insurance does not provide protection against other actions, including:
  • gender/race lawsuits
  • malpractice
  • sexual harassment claims
  • wrongful termination.
For those in high-end service fields, such as the medical or legal profession, professional liability insurance can include "errors and omissions" coverage as well as malpractice insurance.

Costs of Liability Insurance

Policy coverage varies widely and insurance costs are difficult to pinpoint due to a host of variable issues, such as:
  • ages and skills of staff
  • nature of services offered
  • number of full-time employees
  • number of part-time employees
  • number of sub-contractors, if any
  • number of partners/owners
  • property owned or rented
  • size of premises
  • type of business
  • years in business
  • years of owner experience in field.
A standard liability insurance policy will have a cap on payout. Business owners often elect to purchase "umbrella" policies that cover excess awarded damages.

The Benefits of Employee Insurance

The many benefits of employee insurance affect the bottom financial line of a business. A comprehensive health benefit program will give employers an edge as they hire employees, allowing them to hire a higher caliber of worker. A good healthcare plan is also a motivational tool for maintaining qualified staff and can reduce the number of days off that staff members may take for health-related issues. Many insurers provide small group health plans for those with employees numbering less than 50.
 
Even small businesses can take advantage of other types of health plans, such as disability policies, to benefit employees. While offering dental, vision and prescription plans is also optional, it can positively affect employee retention. Providing comprehensive insurance coverage can also help with employee stress management by eliminating the burden of paying for extra services. Dental discounts are increasingly popular and often economical for both owners and staff.
 
In most states, it is not a requirement for any employer to carry insurance, although laws are changing in some states, including Hawaii and Massachusetts.

Pros and Cons of Insurance

For employers, there are an assortment of pros and cons that come with investing in insurance. Business owners or plan administrators should review every aspect of a policy carefully before making a decision.

Pros of Insurance

In addition to attracting and keeping personnel, employee insurance has other advantages:
  • There is group power in purchasing a plan through a business, even if the owner elects not to provide an umbrella program for healthcare.

  • Reduced absenteeism is possible with plans that promote preventative care for workers and their families. Providing insurance that covers annual physicals and normal exams will typically result in a healthier workforce.

  • Tax deductions on employee premiums, as well as on self-insured policies, are available. Check with a business expert familiar with state and federal laws.

Cons of Insurance

An employer must also carefully consider the drawbacks of providing employee insurance before investing in a plan:
  • Administration of an employee plan is tedious and can be costly. In most cases, someone on staff will have to assume some administrative tasks, even when the carrier assumes the majority of duties.

  • Employees may develop resentment over sharing the costs of a benefits plan. Lack of an equitable arrangement for the employer is a common source of complaints.

  • Financial responsibility for even a portion of a health plan program is potentially enormous. Rising costs continue to be a burden on small and large companies alike.
Health insurance costs vary widely among plans and according to state regulations. Job types and risk factors also play an important role in determining costs. Recent statistics reflect an average premium at just over $12,000 for families of four. Employers cover anywhere between 50 and 90 percent of that cost, leaving the remainder to employees.
 
Large corporations and small businesses alike are extremely aware of the rising costs of healthcare. Most also understand the importance of insurance and its effect on employee wellness, morale and retention. More companies are seeking ways to maintain a host of benefits, often with additional personnel involvement. This can sometimes include increased employee contributions in order to maintain the standards of existing plans. Carriers are also providing creative offerings that include Health Savings Accounts and Health Reimbursement Arrangements.

Resources

Allbusiness.com (1999-2008). Understanding General Liability Insurance. Retrieved March 27, 2008, from the All Business Web site: http://www.allbusiness.com/finance/insurance-
liability-insurance/389-1.html.

Insure.com (2007). Small business insurance: Insure for the worst, hope for the best. Retrieved March 27, 2008, from the Insure.com Web site: http://insure.com/articles/business
insurance/small-business-basics.html.

Nchc.org (2008). Health Insurance Cost. Retrieved March 27, 2008, from the National Coalition on Health Care Web site: http://www.nchc.org/facts/cost.shtml.