A lot of business owners are put off buying business insurance for many reasons. A lot of these center around myths about business insurance. We have organized five myths about business insurance that are regularly asked by business owners.
Myth 1: My business is incorporated and the corporate format protects me from liability.
While an LLC or corporation puts a barrier between the finances of the owner(s) and the business, it doesn’t give you 100 percent immunity. There are several instances where you can still be personally liable for what happens in your corporation or LLC.
For instance, if you personally guarantee a loan for your business, sign a contract in your own name separate from the business, or use a personal credit card, you’re responsible for paying back any loans or debts should the business fail to do so.
If you commit a crime, falsify information, or misrepresent yourself, you will definitely be held personally liable for the debt(s).
Myth 2: My business is small and doesn’t make a lot of money, so I don’t have to worry about being sued.
Not true. A business can be sued at any point for any reason. Whether the case is deemed frivolous or not is another story. But should a judgment be rendered against your business by a court of law, then you will be held liable for any monetary payouts.
Note – judgments against your business do not go away and in some cases, can even be renewed.
Myth 3: My business is a consultancy and only offers advice. I don’t need insurance.
E&O policies provide funding for the legal services required to defend yourself against claims of negligence, even if those claims are frivolous. This is essential since the legal defense costs (including lawyer’s fees) are often the most expensive part of an E&O lawsuit – they can easily range into tens of thousands of dollars.
For instance, consider marketing agencies that promise to get their clients’ website on the first page of Google in six weeks. Without a carefully worded contract and E&O Insurance, that agency could be sued if they fail to deliver the promised, expected, or advertised results.
Myth 4: I drive my personal vehicle so I don’t need business auto insurance.
If you use your personal car for business use, your current auto insurance policy may not cover you. If you get into an accident while using your car for business use, you may run into issues with your provider. And if you only have the minimum or standard liability require by the state of New Jersey, you could be looking at even larger difficulties down the road.
Consider getting an extension to the policy to include business use. Check with your provider to see what kind of business use is covered. If your employees use your car for business use, you may need to get a separate insurance policy to cover them.
Myth 5: You Don’t Need Workers’ Compensation Insurance if You’re the Only Employee.
Not necessarily. Some states, like New York, require all businesses to carry workers’ compensation insurance, even if you’re a sole proprietor. New Jersey workers’ compensation law requires that all employers not covered by Federal programs, have workers’ compensation coverage or be approved for self-insurance.
In other parts of the country, your coverage needs will depend on how many employees you have, how those employees are classified, and the kind of work you do.
For instance, some states do not require business owners to carry workers’ comp insurance for contract (1099) workers but do require coverage for full and part-time employees (W2).
Members of an LLC and LLP do not need to be covered by a workers’ comp policy because they are considered partners of a partnership. Click here if you need help clarifying the rules for worker’s comp in New Jersey.
Myth 6: An expensive business owner’s policy is my only option for complete coverage.
This might be one of the primary reasons that business owners are often underinsured or don’t have coverage at all. Because many business owners underestimate how much start-up capital is required or their operating expenses, they assume that a business owners policy (BOP) will be super expensive.
The truth is that getting a business owners’ policy is often cheaper than purchasing all of the insurance needed separately. Any gaps or shortfalls could easily be covered by a very inexpensive umbrella policy.
Myth 7: I don’t need to speak to an expert insurance advisor.
Not all businesses are the same, so why should your insurance coverage be? Where most businesses leave themselves open to risk is by not speaking to an independent advisor.
The Ross Maghan Agency will take the time to fully understand your business and your unique risks to provide you with coverage that fits your budget and meets your needs.
Give us a call anytime at (732) 566-0003 or use the form to the right to request more information.