Insurance for Small Business Owners: 6 Key Protections

Threats to small businesses include fires, storms, lawsuits – the list goes on. Although many small businesses do fail, the right small business protection products can strengthen your resilience and increase the odds of long-term success. It’s not just property damage and lawsuits you need to consider, either. A solid business protection package should include products that protect against the financial fallout of death and disability of the owner and key employees.

Hope for the Best, Plan for the Worst

Even with hard work and dedication, unforeseen events could severely damage your small business. According to the U.S. Chamber of Commerce, there are 33.2 million small businesses in the U.S., accounting for 99.9% of all businesses in the country. Many of them are new – in 2022, a record number of 5.4 million new business applications were filed in the U.S.

Unfortunately, some of these businesses won’t last. In some cases, businesses fail due to their incapability to earn sufficient revenue, perhaps due to problems with marketing or a lack of demand. However, many others fail due to unforeseen circumstances. Small businesses are especially vulnerable to disruptions because they tend to have fewer reserves and often depend on a few individuals or even a single person.

How Death and Disability Can Impact Small Businesses

Many small business owners understand the importance of property and liability insurance coverage to protect them against property damage and lawsuits. However, fewer business owners are prepared for the risks that come with disability and death.

For example, imagine a man has worked hard to build a plumbing company. Since he has liability insurance and coverage for his equipment and office, he thinks he’s protected. As his business grows, he hires an assistant and an office manager but still does the majority of the plumbing work himself. Then, he suffers a heart attack and can’t work for a while. Since he’s not bringing in any income, he is unable to pay his staff, his lease, or his company’s other bills. He has to let his workers go and worries he’ll have to close his business.

Business owners with partners and key employees can experience similar challenges. For example, if two people form a partnership to open a business, what happens if one of them can no longer work? Similarly, if a key employee unexpectedly passes, a small business may have trouble maintaining its operations.

Protecting Your Bottom Line from Death and Disability

During the life of your business, the odds are high that someone who is critical to operations will die or become disabled. Small businesses should prepare for this possibility.

These six key protections can help:

1. Business Overhead Expense Insurance: If a business owner experiences a disability and cannot work, business overhead expense insurance can provide reimbursement for many common business costs, such as the mortgage or lease payments for the property, utility bills, office expenses, and employee salaries.
2. Key Person Life Insurance: If a key employee dies, key person life insurance pays a death benefit to the business to help with resulting expenses, such as lost revenue and recruiting and training costs. Unlike other life insurance policies, the business owns the key person life insurance policy.
3. Key Person Disability Insurance: This is similar to key person life insurance, but it covers disability instead of death. If a key employee can no longer work due to a disability, key person disability pays a disability benefit to the business to help with resulting expenses, including lost revenue and costs to hire a replacement worker.
4. Buy–Sell Life Insurance: If one business partner dies, conflict over the partner’s stake in the company may ensue. A buy–sell agreement outlines what will happen to ensure everyone is on the same page and no disputes occur. Often, buy–sell agreements state that the company or remaining partner or partners will buy the company. A buy–sell life insurance policy provides the funds for the purchase agreed upon in a buy–sell agreement.
5. Buy–Sell Disability Insurance: This is similar to buy-sell life insurance, but it covers the disability of a partner. If a business partner experiences a disability and can no longer work, the partner may want to sell his or her stake in the company. A buy–sell agreement outlines how this will happen and a buy–sell disability insurance policy provides funds for the purchase.
6. Individual Disability Insurance: In addition to the protections above, business owners should also have individual disability insurance to protect their own earning power. If you are unable to earn a living, this paycheck protection ensures that a portion of your income continues.

You’ve worked hard to build your small business. With small business protection, you can help it withstand unforeseen events. Heffernan Insurance Brokers provides tailor-made insurance for small businesses. Learn more.