Quick Guide to Insurance continued

Wheels. "An automobile owned by a business must have a commercial liability policy [covering it]," says Flannagan. Think you can get by simply tacking company cars onto existing personal policies? Don't. In the event of a claim, an insurance carrier might be able to void the policy for misrepresentation. "A commercial policy will cost at least 25 percent more than a personal policy, but you need it," says Flannagan.

However, there's a bonus that comes with commercial coverage. A nominal sum-often just $25 per year, says Flannagan-will let you add on hired and nonowned auto coverage. This is insurance industry jargon that translates into coverage for employees who use their own cars for work-related tasks (remember that pizza pick-up that could have wiped out your business?) and may also cover rental cars when you travel on business (read the fine print or ask your agent to be sure). "Hired and nonowned coverage is a real bargain. And almost every business needs it," says Flannagan.

Professional Liability. "Service businesses need this coverage, but a majority don't have it," says Sharon Emek, CEO of Metro Partners, a New York City company that manages insurance agencies. Professional liability covers cases in which a client experiences disastrous results after following your advice-and sues for damages. General liability policies don't cover these risks, but professional liability coverage does, and it's inexpensive. The peace of mind is worth the few dollars it costs.

Workers' Comp. Most states require this coverage, which offers financial protection against medical payments and disability income for employees injured on the job. Charges are set on a per-worker basis and depend heavily on your industry. Charges for an advertising agency will be nominal (probably less than 25 cents per $100 of payroll), while a roofing company will be charged much more (maybe $20 per each $100 of payroll), says Flannagan.

And if your work force is expanding, you should update your worker's comp coverage as you go along to avoid being hit with a large charge at the end of the year, advises Jones.

Business Interruption Insurance. Picture this: You're insured against fire, so when your business burns down, you'll have the cash to reopen-but it will take you many months to rebuild. Can you afford that delay? About 40 percent of businesses that have their operations interrupted never recover, says Jones. Business interruption insurance is a cure because it provides you with the cash you need for rent, payroll and taxes, and may also cover lost profits. "This is often a neglected but very valuable protection," says Jones.

It's even more valuable, she says, if you buy a low-cost add-on called "extra expense." This coverage makes up the difference between "before loss" business income and the income that comes in after you reopen. It will also cover such "extra" costs as installing new phone lines. This coverage is taken out by only a handful of small-business owners because few know it exists, says Jones.

Electronic Data Processing. Are your computers covered? What about laptops that are off premises? With some property policies-only some-the answers are "yes." In other cases, specialized electronic data processing (EDP) policies cover theft, loss and, possibly, costs incurred when computers break down, says Flannagan. She adds that often, even when policies do cover computer gear, the limits aren't high enough, especially if you or your employees travel with computer equipment. Ask your agent whether you're covered. If you're not, ask about special EDP policies.

Next>>