Every business needs to be adequately insured against possible damage due to fire, theft, vandalism, and other events beyond the owner's control. In exchange for premiums, the insurance company assumes your risk of loss.

While it is possible to purchase individual coverages separately, it is becoming increasingly popular to combine most of a business' property and liability insurance requirements into a single policy. Like homeowners, many small businesses have similar types of property and liability concerns, and consequently, similar insurance needs.

One of the common policies purchased by small- to mid-size businesses is the Business Owners Policy (BOP), which usually includes property coverage for a building and its contents, loss of business income after an accident, and liability coverage for physical injury or damage caused by an employee of your company. Health insurance, workers' compensation, and business automobile coverage are typically not included in the standard BOP.

The concept of the BOP is to bundle a set of prearranged property and liability coverages on virtually an "all-or-nothing" basis. The main advantages of a packaged arrangement are ease of handling, stream-lined rating procedures, and a reduced need for detailed risk management decisions. Since it is generally less expensive for the insurance company to service one policy compared to several policies, total insurance costs for the business owner are usually lower using a packaged policy rather than individual policies.

Even with a packaged BOP, there may be additional endorsements available for including coverage for specialized losses. For example, an asset protection plan helps protect against losses incurred by liquidation (e.g., accounts receivables that are never collected, equipment sold at a loss). Another common special endorsement is coverage for valuable papers and records.

The key point in designing a protection program for property, casualty, and liability losses is to understand the risks specific to your business and to insure accordingly.

Workers compensation recognizes that when an employee sustains a work-related injury, the employer is obligated to pay for medical expenses, temporary and permanent disability benefits, rehabilitation benefits, and survivor's benefits in the event of death.

Workers compensation may constitute a large portion of a business' total insurance costs. Workers compensation (not covered by a BOP) is defined by state statutes, but the laws aren't identical and in some states it is not compulsory.

Under the typical state statute, the employer makes contributions to a workers compensation fund based on a formula that factors in the type of business, the classification of employees, and total payroll. The employee is guaranteed benefits on a timely basis (avoiding the expense and possible delays of litigation), and the employer is protected from potentially open-ended financial losses associated with employee injuries. Workers compensation protects both the welfare of your employees and the financial health of your business.

Another form of business protection is overhead expense insurance. If you become disabled, your illness or injury may not mean a total shutdown of the business, but the company may generate less income during the time you are recuperating. Overhead expense coverage helps the business meet its ongoing expenses if a business owner suffers a disability and is unable to make their usual contribution to the business.

In small businesses especially, one person can make a big impact on monthly revenues or new product development.

Considerations:

• Pays ongoing bills.
• Premiums are tax deductible.
• Business expenses paid with proceeds that are generally tax deductible.