For many consulting businesses, risk management includes risk transfer — buying appropriate insurance. Depending on your service business, it can include fire, automotive, liability, and workers' compensation insurance.
Consider purchasing an umbrella business insurance policy that covers numerous risks in one policy. Many have a liability limit of $1 million, $3 million, or $5 million. The premium is usually cheaper than individual policies and can cover you for risks you may not have considered. Speak with a business insurance agent regarding risk and the costs of risk transfer.
Fire Insurance
Fire insurance covers the risk of loss of assets because of a fire or related events. Special protection other than the standard fire insurance policy is needed to cover the loss by fire of accounts, bills, currency, deeds, evidence of debt, and securities.
You can add other perils — such as windstorm, hail, smoke, explosion, vandalism, and malicious mischief — to your basic fire insurance at a relatively small additional fee. Even if you have several policies on your property, you can still collect only the amount of your actual cash loss. Most insurance policies have fine print stating that all the insurers share the payment proportionately.
In most cases, to recover your loss you must furnish within sixty days a complete inventory of the damaged, destroyed, and undamaged property, showing in detail quantities, costs, actual cash value, and amount of loss claimed. If you and your insurer disagree on the amount of the loss, the question may be resolved through special appraisal procedures provided for in the fire insurance policy.
Automobile Insurance
Does your consulting business need auto insurance? The answer depends on whether there is a company car, who uses it, and why. Note that when an employee uses a car on your behalf, you can be legally liable even though you don't personally own the car or truck.
Automobile insurance pays for medical claims, including your own, that come from vehicle accidents, regardless of the question of negligence. In most states, you must carry liability insurance or be prepared to provide a surety bond or other proof of financial responsibility when you're involved in an accident. In addition, you can purchase uninsured motorist protection to cover your own bodily injury claims from someone who has no insurance. In most policies, personal property stored in a car or truck and not attached to it is not covered under an automobile policy.
If you use your personal car for business travel, discuss coverage with your auto insurance agent or company. You may need additional coverage, depending on use. It will also depend on whether the vehicle is used exclusively, primarily, or occasionally for business. Of course, it also depends on who owns the vehicle — you or your company or corporation.
Liability Insurance
Liability insurance is necessary for most businesses, especially those that deal with property or advice that can be misused by a client. Property liability insurance is important if your business has a physical location, such as an office, that is visited by clients or suppliers. You may be legally liable for damages even in cases where you used reasonable care. Under certain conditions, your business may be subject to damage claims even from trespassers.
Note that most liability policies require you to notify the insurer immediately after an incident on your property that might cause a future claim. This holds true no matter how unimportant the incident may seem at the time it happens. Even if the suit against you is false or fraudulent, the liability insurer pays court costs, legal fees, and interest on judgments in addition to the liability judgments themselves.
Workers' Compensation Insurance
Federal laws require that an employer provide employees a safe place to work, hire competent fellow employees, provide safe tools, and warn employees of existing danger. Whether an employer provides these things, he is liable for damage suits brought by an employee and possible fines of prosecution.
State law determines the level or type of benefits payable under workers' compensation insurance policies. However, not all employees are covered by workers' compensation insurance laws. The exceptions are determined by state law and therefore vary from state to state.
You can save money on workers' compensation insurance by seeing that your employees are properly classified. Rates for workers' compensation insurance vary from 0.1 percent of the payroll for safe occupations to about 25 percent or more of the payroll for very hazardous occupations. Office workers employed by consultants typically have very low accident rates and workers' compensation insurance rates are appropriately low. Your business insurance agent can help you determine workers' comp rates and how to keep them low.
Risk is a significant part of doing business. Analyzing and managing risk is a major component of starting and growing a business. Make sure your consulting business identifies its risks and explains how your business will avoid, reduce, transfer, or retain them.
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