Other Insurance
The first and foremost function of any type of insurance coverage is to insulate the policyholder (you) from some or all of the economic impact of a loss. You pay a relatively small amount as premiums to your insurance company, and the company promises to compensate you if a covered loss occurs, even if the amount of this loss is many times the amount that you paid as premiums.
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On February 24, 2001, Keith Moore paid a yearly homeowners policy premium of $500 on his $100,000 house. The next day, the house burned down, and his insurance company later paid him $100,000 for the damages.
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If Keith were a small business owner, it's fairly easy to imagine that his business might well be seriously affected. It may even be a home-based business, with destroyed business records, inventories, or machinery. But, besides the loss of assets that must be replaced, the owner will feel the pinch in terms of lost personal income.
What might not be as apparent to the would-be or fledgling business owner is that an economic loss falling on the owner, which on its face has nothing to do with the business itself, can still bring the business to its knees. In the example above, even if Keith's $100,000 loss is completely unrelated to the business, if he didn't have insurance coverage the loss might force him to withdraw needed money from the business. This could reduce the business's ability to build or market its products or services, or at least hinder its potential growth. And even if Keith doesn't take anything out of the business, the loss may mean that banks would no longer be willing to extend credit to the business, viewing Keith's personal financial distress as making his personal guarantee on his business's loans worthless.
Thus, as a business owner, when you think about insurance coverage, keep in mind the fact that what hurts the business hurts you, and what hurts you hurts your business. As a practical matter, this means that you have to insure against the same type of personal risks that the non-business owners of the world must, and also insure against the type of risks that are related to the business. It's either this, or be willing to face the consequences when an uninsured loss strikes.
Some types of insurance products, such as life insurance and annuities, may also function as investments as well as asset protectors.
Listed below are some of the types of insurance that you as a business owner should consider:
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