Whether large or small, all family-owned businesses need insurance protection. Some of the coverages you may need are general liability, property, commercial auto, worker’s compensation, and directors and officer’s liability. Even if you run a business out of your home, insurance is still a necessity.
We often think of family businesses as small mom-and-pop operations, but some of the biggest corporations in the world are family controlled, including Walmart, Volkswagen, Berkshire Hathaway, Ford, and Cargill. In fact, 90% of U.S. businesses are owned or controlled by families, according to the U.S. Census Bureau.
Commercial General Liability Coverage
Every company has the risk of being sued. Commercial general liability (CGL) insurance covers injuries or damages caused by your company, including the products and services you sell. Typical examples include a customer slipping and falling on your property, an employee causing damage to someone’s home, or a lawsuit claiming your advertising was false or misleading. CGL would cover the cost of your legal defense and pay damages up to the limits in your policy if you are found liable.
The Insurance Information Institute says that commercial general liability insurance “is one of the most important insurance products, due to the negative impact that a lawsuit can have on a business and because such liability suits happen so frequently.”
CGL policies are composed of three parts:
- Part A covers bodily injury and property damage.
- Part B covers personal and advertising injury such as libel, slander, copyright infringement, use of another’s advertising idea, wrongful eviction, or invasion of privacy.
- Part C covers medical payments for injuries to a non-employee that occur on your premises or because of your operations.
It is important to note that a CGL policy does not cover negligent professional acts. These would be covered by a separate professional liability policy. You will need to purchase workers’ compensation and employment practices liability insurance separately as well. We will cover those types of coverages later in this white paper.
Commercial Property Insurance
Nearly every company needs some type of property insurance to protect the premises and the contents of the business. Commercial property insurance will pay to repair or replace physical assets that are damaged or destroyed from fire, theft, or other covered losses. These policies typically cover buildings, equipment, furniture, personal property, inventory, and tools.
If you have special equipment, such as a commercial kitchen, woodworking or shop tools, or if you store equipment and tools for your business in your home, you should talk to an insurance professional about commercial property insurance. If you transport tools and equipment to a job site, you may need inland marine insurance as well.
Commercial Auto Insurance
If you use a car or truck in your business, you will need an auto policy that insures vehicles for commercial use. This includes uses such as picking up clients, visiting a job site, transporting goods for sale, or running business errands. While many insurers offer these types of policies, and it is easy to get quotes, you may benefit from talking to an insurance professional who can design the best coverage portfolio for you.
You will want to ask about liability limits, physical damage, medical payments, under- and uninsured motorist protection, hired auto (if you pick up passengers or make deliveries), and whether the policy covers employees and non-owners. Coverage and prices will vary by type of vehicle, such as car versus truck.
If a family member or one of your employees is making deliveries with a personal vehicle, you will need to check to see if they are covered under their personal auto policy. Your business could be held liable if an employee causes an accident while traveling on company time.
Business Owner’s Insurance
A business owners policy (BOP) is a bundled approach to commercial coverage. These policies include coverage, such as liability, property, and vehicle, and sometimes include a few other protections that you will see below, such as cyber insurance, employment practices liability insurance, and business interruption insurance.
The Richland-Knowles Insurance Agency can help you weigh the advantages and disadvantages of a bundled approach.
Larger businesses or firms that operate in a specialized field may be better off with a commercial package policy (CPP), which allows you to tailor the coverage to your needs. Like a BOP, the core of a CPP will be protection against property and liability exposures. Your limits of coverage may be higher using the CPP approach.
Cyber Insurance
Most businesses rely on the internet for their business operations and for transactional sales. From the heavy technology use, your company is very vulnerable to cybercrime and data breaches. Cyber criminals are always looking for new ways to exploit system vulnerabilities. These types of criminals tend to target small businesses much more often than large companies.
Contact Richland-Knowles Insurance Agency about cyber and data breach coverage to protect against electronic theft, loss of data, disruption of your company’s networks, loss of income due to a temporary suspension of business operations, and damage to your reputation. Many insurers offer privacy and network security coverage as a part of a BOP or professional liability insurance policy.
It is a good idea to engage a cyber-security professional to help you protect your internet connections, Wi-Fi enabled devices, and computers/tablets/smartphones from hackers. You will also need to protect customers’ personal data – while being transferred and while being stored. You could be held liable for a data breach if you fail to protect your clients’ information.
Most cyber policies will cover customer notification of a breach, anti-fraud protection and credit monitoring for customers, security incident investigations, cyber extortion, and ransomware costs.
There are also cyber risk policies that cover network business interruption. These help if your system fails for reasons other than cyber invasion – something like human error, a failure to install updates, or a third-party network problem. This coverage may be bundled in an overall cyber package, so talk to your insurance professional about how to integrate this important protection into your coverage.
Directors & Officers Liability Insurance
Directors and officers (D&O) liability insurance protects your company’s leaders from personal financial exposure in the event investors, employees, vendors, competitors, customers, or other parties sue them for breach of duty.
Some of the more common exposures include failure to comply with regulations or laws, failure to provide a safe and secure workplace, operational failures and mismanagement, employment practices and HR issues, cyber liability, and bankruptcy.
If your family controls a company, has representation on the board, or is in the C-suite, D&O coverage is critical. You may think D&O is only for larger, publicly traded companies or assume that your commercial general liability policy will cover your exposure, but that is not the case.
In fact, lack of D&O coverage can be a deal-breaker for investors and potential directors. Most venture capital and private equity firms will not invest in a company that does not have D&O coverage. Remember, your directors and officers are putting their personal assets at risk if you do not have coverage.
Richland-Knowles Insurance Agency can tailor a policy for your family business. You can purchase D&O coverage separately or as part of a bundled package of coverages that may include D&O, employment practices liability, fiduciary liability, crime, and cyber insurance.
Employment Practices Liability Insurance
Employment lawsuits can be a huge exposure for your company, with defense costs in the tens or even hundreds of thousands of dollars. Employment practices liability insurance (EPLI) will cover your court costs and attorney fees in these cases, subject to the limits in the policy.
EPLI policies cover a range of exposures, including wrongful termination, discrimination, sexual harassment, retaliation, defamation or libel, breach of employment contract, and mismanagement of benefits.
You may be able to add EPLI to your BOP as an endorsement, or you may want to buy a stand-alone policy with higher limits.
Insurers will ask to see detailed information about your business when underwriting your risks for D&O and EPLI coverage. Family businesses do not always have a formal business structure or well-defined human resources policies. Look at this checklist to make sure you have these safeguards in place:
- Written HR policies banning discrimination and sexual harassment
- Regular, consistent, and fair performance reviews, with policies for addressing and documenting unacceptable performance
- Safe, confidential reporting procedures for employee feedback A written policy regarding social media in the workplace
- A business continuity plan
- A network security and privacy policy A corporate governance program
- Written procedures to address fiduciary duties
- Written guidelines for performance reviews and policies for addressing unacceptable performance
Other Coverages You May Need
Professional liability/errors and omissions (E&O) – If your family business provides professional advice or services, you will need professional liability insurance to protect against the cost of lawsuits. Ask your insurance professional about the various policies available.
Business interruption – Also known as business income insurance, these policies cover the loss of income after a disaster, whether it is due to the closing of your business or the rebuilding process afterward. Designed to put your business in the same financial position it would have been in if no loss had occurred, business interruption insurance may be offered as a rider or endorsement to a commercial property policy or a BOP. Coverage is limited to defined events in the policy.
Commercial umbrella – When claims against your business exceed your regular coverage limits, an umbrella policy provides additional protection. Your insurance professional can discuss your policies’ limits and suggest where you might need additional coverage.
Pollution – Pollution insurance was created specifically to manage the cost of pollution cleanups and cover liability claims for related injuries, illnesses, and deaths. It is a separate policy from your regular business insurance. Hair salons, dry-cleaning services, junkyards, and service stations are just a few family businesses that might need pollution insurance.
Workers’ compensation – Workers’ comp insurance is required in nearly every state to compensate employees for injuries sustained on the job. Family members who are employees are not always exempt from this requirement; the requirements vary by state and are based on your number of employees and the job role of the people under consideration. If your business is in construction or another type of hazardous work, workers’ comp is a must. Find out more from an insurance professional who specializes in the workers’ comp market in all states where you operate.
Key person insurance – One way to ensure your family business survives from one generation to the next is to purchase “key-person” life insurance on the lives of the top people in your company. The named insureds can be the owners or key executives – anyone whose premature death might jeopardize the future of the business. The premiums are paid by your business, and the business itself is named as the beneficiary of the policy’s proceeds, which can be used to fund an executive search or for another company-sustaining purpose. Life insurance can also fund a buy-sell agreement, which is a way to transfer ownership when an owner or partner dies. The policy’s death benefits are used to pay for the sale of shares to the surviving owners of the company, thus keeping the business in the family.
Get the Insurance You Need to Stay in Business
There are 5.5 million family businesses in the United States. From the Small Business Administration to local business centers, there are many resources to help you start or expand a business. Your insurance professional can help, too, by designing an insurance program that grows with your company.
According to the Family Business Alliance, more than 30% of family-owned businesses survive into the second generation.
Twelve percent will still be viable into the third generation, with 3% of all family businesses operating at the fourth-generation level and beyond. Richland-Knowles Agency is here to keep you protected.
If you would like to learn more, please contact us at 908-273-7100 or Information@RichlandKnowles.com.