Today more than ever before, people are deciding to forgo the security of a 40 hour per week job large established companies for the flexibility and opportunities provided by starting their own business. A generational shift is occurring where modern business owners are learning they can have more control over their future and wealth by by starting their own companies. However, if you have never run a business before, you may not be aware of all the things you’ll need to take care of in order to comply with the law. Obtaining the proper business insurance is one of those things. Yes, buying business insurance, for the most part, is a prudent but optional choice. But, which scenarios legally require a business to have coverage in place?
people Hiring Employees & Contractors
The first, and most common, scenario that will trigger a mandatory insurance requirement is the hiring of employees or independent contractors (1099s). Employee safety should always be top of mind so ensuring that your employees can recover quickly after a work place accident or illness is imperative. That is why each and every state legally requires all companies with a certain number employees or contractors to maintain workers compensation insurance coverage and the number of employees, or contractors, that triggers this requirement varies by state. It’s important to understand that employers are always responsible for all medical costs associated with an employee injury or illness that occurs while the employee is performing their job duties. This is the exact thing that workers comp insurance covers and often for less than $100 per month. In the grand scheme of things, this type of insurance is inexpensive considering many states states, like California, charge fines in excess of $10,000 for companies operating without a workers compensation policy and there is even the potential for jail time.
directions_car Company Owned or Leased Vehicles
Another common scenario that triggers a legal business insurance requirement that applies to many small businesses is when there are any company owned vehicles. Just like for personal auto insurance, a business is legally required to hold automobile liability insurance for any vehicles owned or leased by the company. The required limits vary by state but typically start around $25,000. If you happen to operate in a major metropolitan area, chances are any auto accident you cause is going to create liabilities in excess of that $25,000. Secondly, if the accident is severe, it will be discovered that the vehicle is owned by a company and the damages sought will increase considerably. So do yourself and your company a favor and opt for a $1,000,000 commercial auto limit and also consider purchasing an umbrella policy to provide additional protection. Automobile accidents, after all, are the second most common uncovered or under covered insurance claim that small businesses experience.
security Data Breaches
It seems like every day we are hearing about another hacking-related data breach that exposes some amount of private information from a company’s customers. It can range from confidential corporate information like trade-secrets to personal identifiable information like health records or credit card information. These data breaches cause such a significant amount of damage to everyone involved that regulators have begun to enforce cyber liability and data security insurance requirements. If your company operates in the medical field, finance field, or accepts credit card payments, chances are there is regulatory oversight that you must comply with. In addition to putting in place the proper data protection for your computer systems, you might also be required to have a comprehensive cyber liability insurance policy that can fund the data breach recovery efforts in the event of a breach. Why is this important? Well, the executives of companies experiencing data breaches are being held personally legally responsible for the data their companies retain and failing to properly protect that data can result in hefty fines and, in some cases, even jail time for owners and executives.
Keep in mind, these are just a few of the most common types of insurance and the scenarios that legally mandate them. There are a host of other policies that can be legally required through customer contracts or lease agreements. It’s best to periodically review the insurance requirement clauses in your company’s contracts and agreements to ensure you aren’t underinsured. At Layr, we’ve made the process of getting the right insurance at the right time as easy, painless, and affordable as possible. So if you’re thinking about starting your own company or if you’ve already taken the leap are nearing one of these three milestones, keep us in mind.