What 9/10 Small Business Owners Do Not Know About Small Business Insurance!

By: Ed Brancheau


What types of insurance coverage do you want? Well that depends on several different factors. First, there is the size of your small business and how it's organized. Is it a one man sole proprietorship or a 50-employee corporation. Next, you have to take into account how you pay yourself and your employees. Do you pay a salary? Commissions? Then you want to think about your small business' location, your exposure to liability or law suits and whether your small business sells products or services.

Things to ponder:

Should you die prematurely, do you have enough life insurance to protect your family? Why is this so important? Well, if you have a small service oriented business, it will be worth $0 when you die. For example, the spouse of a deceased doctor or lawyer can only sell the tools of the trade, not the clients (the true bread and butter of any small service business). Get a crystal ball and see into the future to know when you are going to die then you could sell your small business before you kick the bucket. Otherwise, all small service business owners should protect their families with a minimum coverage of 7X gross income.

If your goal is to have a member of your family take over your small business at your demise, are they capable (and licensed) to do so?

Do you have disability insurance, in case you're incapable of running your enterprise because of illness or injury? This type of coverage will usually give you approximately 60% of your income, for a stipulated period of time. On top of that, your disability benefits could be non-taxable or taxable depending on whether you claimed the premium as a business expense.

Even more important is your answer to this question: Do you have "business overhead insurance"? Who will cover the costs of running your small business (utilities, insurance, salaries) while you're out of commission? Your small business overhead expenses will not be covered by your disability insurance unless you include it as an add-on.

Got business partners? Do you have a buy/sell agreement? Should your partner die, you will be protecting your interest in the business. Here's a great example of this: your partner dies and his wife wants to claim her share of the business. What if your partner's relatives have no idea how to operate the business? Would they be asset or a liability? This type of coverage would allow you to buy out your deceased partner's share of the business, avoiding any conflicts or interference by outside parties.

What about "disability buy-out coverage"? Do you have it? If your partner was to become severly disabled, you would be presented with several problems without this particular type of insurance. How would you feel if you had to keep on paying your partner for years to come when they cannot do any work because of their disability? Well, when you have "disability buy-out coverage", you would never have to wory about this situation because after a period of time, your disabled partner would be forced to sell his share of the business to you.

Of course, many of these situations may not occur, but it's your small business. The final step is to determine what types of insurance coverage you believe you want to protect your small business and then call and speak to a professtional who can set you up.


Ed Brancheau created The Bank of Green to advise small businesses about subjects like low cost small business health insurance and to help individuals build wealth through their home equity.