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BFS Capital Blog

Types of Business Insurance

December 12, 2017

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Many entrepreneurs have perseverance and a plan, but more importantly, carry a vision. In order to bring their vision into reality, they seek out financial backing. This is why entrepreneurs seek out banks, investors, and small business lenders. The relationship between a small business owner and their customers are important but stable financing can turn dreams into reality and a fledgling business into an agile, growing enterprise. Financial firms will invest in or lend money to a business based on a variety of factors and look at the overall health of the organization before committing funding. Although many loans do not require proof of insurance, the purchase of insurance for your business should be considered a practical and necessary next step to ensure you protect your new funding, so that it may be used for its intended purpose rather than for life’s unexpected events!

What is Business Insurance?

For all of its nuances, the definition of business insurance is very straight forward. Business insurance is a method of transferring an individual or entity’s risk against potential perils to an outside entity for an agreed upon sum that corresponds to the likelihood of an occurrence.

There are many reasons that a business can be assessed fines or served suits. They can arise from an unintentional mistake, a breakdown of equipment, or the misdeeds of a member of your company. All of these situations can bankrupt a business. When the business fails, the investor loses their investment. Business insurance is meant to protect you, your organization, and your investors in the event of these unexpected events!

Insurance is a valuable safeguard for any business. For an investor whose business is investing in businesses, insurance becomes crucial. Whether your goal is to start a business or expand your business, here are 5 types of insurance that you and your investors need to have to secure your future.

5 Protections Insurance Provides To Your Business and Financier

  1. General Liability

    One of the quickest ways for a business to fail is to get embroiled in a drawn out legal battle. Win or lose, the amount of financial, human, and emotional resources expended will not only set your business back, but can also cause it to collapse completely.

    The purpose of General Liability Insurance is to mitigate these circumstances and prevent total loss in the case of a suit. As such, investors require clients to maintain minimum levels of liability based on industry and risk. In most cases investors require you to list them as additional insured’s on your policy. This provides two protections: in the case of your policies impending cancellation, they will be notified; in the case of a lawsuit, your company and their investment is protected.

  2. Physical Property

    Whether you are a new company or expanding, you may need to rent or purchase a location for your business. Any company that finances these types of risk understands that accidents and disasters happen. Property Insurance is a requirement of lenders that will cover your location against hazards including: floods, earthquakes, vandalism, theft, and others.

    Once again, your business will be required to list the loan servicer as an additional insured. Replacing business property or rebuilding is expensive and the average corporation can’t afford to rebuild out of pocket. Your insurance can retain this cost allowing you to get up and running as soon as possible!

  3. Business Personal Property

    Most businesses have at least a modicum of Business Personal Property (BPP) . Business Personal Property includes everything from desks and computers to large scale industrial equipment. Whether or not you have loans on your equipment, investors may require you to insure against equipment theft, breakdown, or general loss. Even if investors do not have financial stakes in your equipment, they do have one in your business. Without your equipment, your business, along with their financial investment, may cease to exist.

  4. Business Owner’s Policy (BOP)

    The Business Owner’s Policy, or BOP, is not a stand alone coverage. It is the combination of the prior three coverages. Insurance companies recognize that the combination of coverage that a BOP provides fulfills most common insurance requirements. This package provides these protections at a reduced cost with standard levels of coverage putting all of your policies firmly in one place.

  5. Director’s and Officer’s Insurance

    As companies grow, expand, and develop, there will be more employees and more executives. Director’s and Officer’s Insurance protects a company from fallout in the case of misdeeds within the organization’s leadership. While relatively rare, financial crimes and the consequences of later suits can be more devastating than a hurricane. Not only does the company feel the initial financial and public relations impact of the crime, consumers lawsuits, fines, and other losses will follow.
    D&O coverage will protect your business and your investors from the impending financial fallout.

These five coverages are the baseline of the coverages that most investors require. Contracts may have additional requirements such as Tenants Betterment and Improvement endorsements, Employer Liability Insurance, and Worker’s Compensation as well. That is why it is important that you work with a licensed insurance agent to review the insurance section of your investor’s contract. Not only do you want to have the correct coverage to protect your business in the case of claim, you want to protect your investor’s interests as well. Signing a finance agreement can be the start of a beautiful relationship. Maintaining the correct coverage will insure that it stays that way.

Protect Your Company and don’t overpay for your business insurance.
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