How do you choose the right business insurance?
What insurance policies should you consider?
We break down the insurance world into three categories: Mandatory, Sensible, Additional.
1. Mandatory: In the US, certain insurance is required by law
• Workers’ compensation is insurance against your liability to employees for injury or illness arising from the work they do for you. You should put this in place especially if you have employees working in the US for extended periods of time.
• Third party motor insurance is mandatory if you use vehicles on the road in the USA on company business, and may be mandatory for personal use (depending on your state).
2. Sensible insurance protection: Although these may not be legally mandated, they’re of critical importance to most organizations in the US. Your clients and suppliers may also require that you have them in place.
• General liability insurance protects your business against allegations of negligence resulting in injury to third parties or damage to their property. It also protects you where you’re legally responsible for any damage or injury caused by a product you have supplied.
• Errors & omissions insurance protects you against allegations that your negligence has led a third party to suffer financially. This is particularly relevant if you offer professional services or skills for a fee.
• Directors & officers liability insurance (D&O) – The term “limited liability” can be a misnomer; individual directors and managers within an organization may face potentially ruinous personal liability for the decisions and actions they make. Protect your key decision-makers with a “D&O” policy.
• Property insurance protects your physical assets including buildings, improvements, office and laboratory machinery & equipment, computers & data, stock, documents, lab books, prototypes and R&D materials, temperature-sensitive stock and mobile equipment.
• Consequential loss insurance protects your income streams where there’s an unexpected interruption to business operations. The insurance can protect you against loss of revenue, profit and other unexpected costs.
3. Additional: other types of insurance you should consider
• Marine cargo/inland marine – It’s much safer to insure your own property in transit. Reliance on your freight forwarder’s insurance policy for lost or damaged freight could leave you significantly out of pocket.
• Employment Practice Liability (EPL) – The cost of employee-employer disputes through tribunals and court actions is a significant threat to profitability. EPL protects against allegations of harassment, discrimination, unfair dismissal, and wrongful disciplining.
• Cyber and data liability – In the wake of numerous high-profile cybercrime cases, including network and data breaches, businesses can buy insurance that protects against costs, expenses and liability arising from Breach of Privacy, Data Breach Notification Costs, Cyber Liability, and costs of restoring or recreating data.
What type of insurance do start-ups need in the US?
For a summary table on the insurance requirements for a C Corp, S Corp and LLC, download the Question the Questions report below and check out page 67.
• What additional risks need to be considered?
• Are you with the right insurer?
• Do your existing policies provide the requisite cover for the US already? If not, can they be easily extended?
• How much is it all likely to cost?
Items of note:
• It’s also worth checking your investment agreements, since specific types of insurance are often required by investors
• If you have employees operating in the US on a short-term or secondment basis, your company’s travel insurance may not cover them for an extended period of travel. As a result, it is advisable to check this in advance. Monthly insurance plans for foreign travelers such as IMG Global are intended to replicate the level of health cover that a full-time employee may receive as part of an employment package
• It can be worth reviewing the terms and conditions that you will give to US clients in order to make sure this matches with the level of cover you are comfortable giving. In many instances, restricting the level of “consequential loss” is also advisable
• If you are thinking about launching in the US in the next 12–18 months, it is worth considering that you may need to change insurers in the near future so do not agree to any long-term arrangements with your underwriter
• Whenever there are any material changes in the business, such as a change of address or alteration of business activity, you are required to update your insurer or broker as this may otherwise invalidate your protection
• From talking to specialists, having a group policy which covers all the international entities is far more robust than having multiple different policies covering specific geographies. Otherwise, there is a risk that otherwise a claim that may arise could fall between policies.
Specialists in the field
Elaine Lamb – La Playa Insurance
Melissa Gato – Shoff Darby Insurance Agency
Ralph Torrez – Sweet and Baker Insurance