Small Business Insurance

December 12th, 2010 BY Claire Moore

Excerpt from Jumpstart Your Bookkeeping Business
by Claire Moore, M.B.A.

available at Amazon.com at http://budurl.com/jumpstartbookkeeping

When you’re starting your small business, insurance may be the last thing on your mind. Yet it’s important for you to make sure that you’re covered in key areas such as life, health, disability, and liability.

Life insurance is vital if you have anyone in your life that depends on you. This includes spouse, children, grandchildren, and perhaps your parents. If you weren’t around to help care for their daily needs what would happen to them? How would they cope? Even if you’re a married woman and you’re not yet bringing in significant income, your absence would mean that your husband would have to find a way to care for the home and children without your help and that would probably mean hiring one or more service providers. Where would the money come from?

Your health is one of your most precious assets. Without your health, you won’t be able to carry out the many personal and business tasks and interests that make your life worthwhile. You may think that exercise and healthy habits will be good enough to get you through but what happens if you’re involved in an accident? A visit to the emergency room can easily result in a bill of several hundred dollars. You need to protect your financial status by avoiding any avoidable debt.

Disability insurance is often overlooked because it just doesn’t seem important. But statistics show that you’re more likely to suffer a disability than you are to die and that this is especially true of young people. According to the Social Security Administration, three in 10 workers entering the work force today will come disabled before retiring. Health Insurance Association of America reported in February of 2000 that one in seven workers could expect to be disabled for five years or more before retirement. If you’re counting on Social Security Disability, think again. According to the Social Security Administration Office of Disability and Income Security Program, less than half of the 2.1 million workers who applied for SSDI benefits in 2005 were approved.

Liability insurance is important for every business, even if you work from home. Some business owners incorporate or form an LLC (limited liability company) thinking that they will be personally protected from liability in their business but that won’t protect you if you have signed a guarantee for a loan, have personally injured someone, have acted in an irresponsible or illegal manner, or if the state decides that you have not operated your business as if it is a separate legal entity.

No matter how careful you are accidents can happen, people can be injured, property can be destroyed, and customers who are dissatisfied may sue you for malpractice or errors.
You need liability insurance to cover the legal costs and any damages you are ordered to pay.

Life Insurance

If you’ve ever shopped for life insurance, then you know how confusing it can be to choose among the different types of coverage available. If you have a family or other loved ones who depend on you then it’s worth the trouble to seek out the best policy for your needs.

Here is a brief description of the types of life insurance coverage. It only scratches the surface so if you’re in the market for insurance, be sure to do more research and contact an insurance agent.

Term: You’ve probably heard the phrase, “Buy Term and invest the difference.” What they refer to is the fact that term insurance is the least expense type of life insurance coverage leaving your other money available to invest. It’s pure coverage for a specific period (term) of time. Let’s say you buy a term policy for $50,000 of coverage. If you die next month, your beneficiary (the person you named to collect the insurance if you die) will receive $50,000 in proceeds. The term for such policies can be anywhere from one year to thirty years or even more. At the end of your term, you can renew if you want to regardless of your health status but your premium will be recalculated based on your age. As you get older your premiums will increase. At some point you may choose to switch your coverage from term to a permanent coverage. It’s easier and usually less expensive to buy term insurance when you’re young and healthy. Because it’s so economical, term may be your best choice for life insurance at this point in your business plans.

Whole Life: One of the permanent insurance types, whole life accumulates a cash value in addition to its death coverage. Unlike term insurance, whole life provides coverage for your entire life. Your premiums are higher than those for term life because part of each payment goes to your cash value. Your premiums will not change as you grow older.

Universal: A type of permanent insurance with both a death benefit and a cash value. You have choices regarding the amounts and timing of premium payments. Each choice has a direct impact on your coverage and cash value accumulation. If you decide to increase your coverage you will have to undergo the insurability process and perhaps a medical exam.

Variable: This form of permanent insurance allows you to choose how the cash account will be invested. Variable life policies require a fixed annual premium for the life of the policy. They may provide for a minimum guaranteed death benefit.

Variable universal: Combine the options of universal life with the flexibility of variable life and you get variable universal life. You choose how much and how often your premium payments will be (within guidelines). Payments in excess of costs (administrative and insurance) are invested in accounts of your choice.

How much life insurance coverage do you need?

How much life insurance coverage you need depends on factors such as:

    * The amount of social security that will be paid to your spouse and children as your survivors
    * Your anticipated funeral costs
    * The ages of your children as you want to provide for them until they reach adulthood and perhaps even pay for college
    * The amount of debts (such as your mortgage) that you want to be able to pay off should you die
    * Other income sources such as retirement accounts and vested pension benefits with a death component
    * How much you think inflation will affect your investments
    * The ability of your surviving spouse to earn an income and fund a retirement account until age 65

Health Insurance

If you are working at a job that provides you health insurance, and you have been a member of the plan for at least three consecutive months, then you may be eligible for COBRA coverage for you and your family if you leave your job. If you want COBRA, then consider changing to a more streamlined, cheaper plan before you quit. Then purchase COBRA coverage which will extend your health coverage for 18 months. Contact your HR department to find out whether your employer company qualifies for COBRA (must employ 20 or more), what coverage is available (medical, dental or vision), and what this will cost you. Make sure you have enough savings or income to make the payments. COBRA coverage is typically 102 percent of the employer’s actual cost of your coverage, so it will be much more expensive than anything you paid as an employee. COBRA coverage is also possible if you change from full-time to part-time status at your job.

Under the American Recovery and Reinvestment Act of 2009 (ARRA), if you experience involuntary job termination between September 1, 2008 and December 31, 2009, you may be eligible for a reduced COBRA premium for up to 9 months.

For more information about COBRA and the new rules under ARRA, go to http://www.dol.gov/ebsa/faqs/faq-cobra-premiumreductionEE.html

As a business, you might want to hire your spouse, then you will qualify for group sponsored health insurance. The insurance company will have to accept you for coverage. They will charge you more and the rate will vary from state to state. If you have had previous coverage, and it is continuous, you may be able to get coverage that does not exclude pre-existing conditions.

Other points to remember:

    * When buying health insurance, you can save money on the premiums if you opt for a higher deductible. Consider all your needs and circumstances when making this decision. Consult a reputable insurance agent.
    * If your spouse is employed, be sure to have him/her sign up for and maintain health insurance coverage for your entire family.
    * Whatever coverage you get, make sure that it includes prescriptions.
    * If you really need insurance and can’t get it any other way than from a job, look for a part time job with health benefits. Starbuck’s is famous for offering part timers health benefits. Look for other companies in your area that do the same.

If you are going to buy self-employed health insurance, you want a good insurance agent. When you are starting your research beware of any agent who only represents only one company because he will be biased toward his company. That may be alright if it’s a good company but how will you know that if you don’t check out several for comparison. Check out a number of insurance plans before you make your decision. Your networking contacts may be able to give you advice based on their experiences. If you need help finding a reputable agent, check with the National Association of Health Underwriters at http://www.nahu.org.

The American Diabetes Association web site has links to health insurance programs in all 50 states at http://www.diabetes.org/advocacy-and-legalresources/insurance/overview.jsp and for self-employed and small businesses at http://www.diabetes.org/advocacy-and-legalresources/healthcare/healthinsurance/small-business-owners.jsp.

Disability Insurance

Also known as income replacement, disability insurance may be more important than life insurance. Without an earnings history, however, it may be difficult for an insurer to qualify you for coverage. After all, how can your income be insured if you don’t know what your typical annual income is? Even if your income history can be determined, coverage will typically amount to about 60 percent of your net income. When shopping for disability insurance, make sure that you understand the policy terminology:

    * Waiting period: the amount of time that must pass between the time of your injury and the time that payment will begin. The longer you wait the lower the premium but how will you live during the waiting period?
    * Occupation: does your policy define a disability in terms of the “major activities of your own occupation” or in terms of being unable to perform any occupation.
    * Coverage period: the length of time that you will receive payments. Some policies are for a limited numbers of years while others will pay you until you reach age 65.
    * Amount of premium: will the premiums change if you become ill, as you age, if you must take medication?
    * Cancellation: under what circumstances can your policy be canceled? Make sure you know all the details. Some policies can only be canceled if you stop making your premium payments.
    * Payment cost of living adjustments: does your policy have a rider that will increase your payments as the cost of living increases?
    * Increase coverage: can you increase your coverage without providing evidence of insurability? As you build your business your income will increase, so should your coverage.

Professional liability insurance – Errors and omissions

Errors and Omission Insurance (E&O) will cover you against lawsuits brought by clients who accuse you of making an error that costs them. Even if you form an LLC or incorporate, E&O insurance is a necessity for your protection. According to the AIPB web site, members can get a discount on insurance through AIPB’s preferred provider.

General liability insurance
Business owners purchase general liability insurance to cover legal costs due to accident, injuries and claims of negligence. These policies protect against payments as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.
Personal liability insurance and property damage

Your basic homeowner’s insurance doesn’t cover incidents that happen away from home, nor do they usually cover business-related activities. If you are a homeowner working out of your home and you have clients visit occasionally, you should also consult with your insurance agent regarding additional coverage for liability and property damage and a liability umbrella policy of one million dollars.

There are different types of policies and add-ons available for the home-office.

    * A business owner’s policy is the most inclusive type of coverage and includes loss data and loss of income.
    * A home office policy includes general business liability and coverage for income and expenses.
    * A business pursuits endorsement is an add-on to your homeowner’s policy. It provides little protection for those who will have clients visit their home or who have expensive office equipment.

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