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Even when cash may be scarce, or revenues down, small businesses should not neglect their insurance needs. Businesses that are underinsured or without broad, proper and adequate coverage are taking needless risks, which could eventuate in serious financial problems, including bankruptcy. In a crisis, a business without insurance or which is underinsured can be totally destroyed.

Business owners must be thoroughly informed on what their insurance policies cover and what is excluded. A periodic review of insurance, therefore, is an absolute necessity, along with updates and adjustments in coverage as circumstances change. This article will discuss the various types of insurance available to small businesses and what you should do to best protect yourself against harmful claims against your business. (For related reading, see Asset Protection For The Business Owner.)

Historical Consequences

In the wake of tropical storms that ravaged New Orleans, Galveston, Houston and other hard-hit areas, countless owners of small businesses were underinsured, or carried no insurance at all, for natural disasters such as hurricanes and flooding and were severely hurt.

Many of these owners were either unaware that their companies were not covered by insurance, or decided not to buy storm-damage coverage because of a scarcity of cash. A number of owners were shocked to learn - when their insurance claims were denied - that they were not covered for the damages they reported even when they thought they had bought the right policies. (For further reading, check out Will Filing An Insurance Claim Raise Your Rates?)

Another insurance issue that requires the vigilance of small-business owners is the expiration date of their policies. In most cases, the insurance company, agent or broker from whom a business owner bought his or her policies will inform them when their policies are about to lapse or need to be renewed. But the prudent owner should make a note as to when a policy is about to expire, then renew it in advance so that there is no gap in coverage and no disappointment if claims are filed.

Types Of Insurance Coverage

Insurance products are contractual arrangements between the insured and the insurer. The contract spells out the following details:

  • What is insured

  • The cost of the insurance

  • The conditions under which a claim may be made

  • The terms of payment if the claim is honored

There is a wide variety of insurance categories and degrees of coverage that both the startup-business owner and the owner of an ongoing concern should investigate.

Deductibles and premiums vary in price. An insurance deductible is the amount of money the insured must pay toward a claim before the insurance company pays on the claim. Usually, the higher the deductible, the lower the premium - the cost of buying and maintaining the policy in force. Premiums may be paid on a variety of schedules, including annually (the most common), quarterly or monthly.

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