Every business has ups and downs. It can suffer unexpected losses due to incorrect decision making, the business premises may get hit by a natural disaster or face vandalism or it can be sued by its clients for reasons such as breach of trust, inability to deliver services as promised and many more. There are many known insurance policies such as professional indemnity insurance, group health and accident insurance, business owner’s liability insurance, etc, which are purchased by businesses for protection against some of the situations mentioned above.
However, there are some lesser known insurance policies that are useful and should be considered while setting up a business. These insurance policies are especially useful for small businesses, entrepreneurs and startups. It is a fact that smaller businesses are more vulnerable to unexpected problems and they have a greater risk of turning bankrupt as compared to the big businesses. Hence, they require a more focused and thoughtful insurance coverage plan. An account of some of those lesser known insurance policies is provided here.
Key Person Insurance
Every business has an important employee whose contribution to the business is extremely crucial and is considered to be more valuable than the other employees. For a small business, this important employee is its proprietor. Whereas, for a large business the key person is its executive, business partner or a major shareholder of the business.
Key Person Insurance is also known as Keyman insurance or key employee insurance. It is purchased by a business to protect itself against the supposed losses that the business is likely to suffer in the eventuality that its key employee dies, falls terribly ill or is disabled thereby unable to work, or suffers from an illness. The insurance policy helps pay for the costs of recruiting a new employee in place of the key employee. It even compensates for the salary that is paid to employees in case of absenteeism due to injury.
Cyber Liability Insurance
Although know, but ignored, cyber risk insurance is one of the most essential insurance these days. Today most of the businesses take help of electronic devices such as laptops, computers and smartphones for their operations. These devices are used to generate and store important and sensitive data pertaining to the business and the clients. With an increase in the usage of these devices and the internet in business-related affairs, there also comes the risk of being susceptible to cyber crimes. The databases of the businesses can be hacked and sensitive information can get leaked which would be very detrimental to the interests of any business. Moreover, the electronic devices may also get damaged or be vandalised.
In the event that sensitive information of the clients gets leaked, the clients can sue a business for a number of things such as disregard for the protection of information laws. There can also be information which is not related to the client but is useful for the business. If that gets stolen or destroyed, the cost of restoring them can be significant. To protect itself from such circumstances, businesses should purchase Cyber Liability Insurance.
What does the Cyber Liability Insurance cover?
- Cost of restoring lost data- If the business faces a cyber attack, its systems get infected by a computer virus or suffers from a denial of service attack, the data stored on its systems can get lost or destroyed. The data can belong to the business or a third party. Cyber liability insurance will help cover the costs of restoring and recovering that lost data. The cost is usually related to hiring an IT professional who will work to help restore that data.
- Financial Losses- A cyber attack can also lead to losses in financial terms for a business. For instance, till the system’s data is restored, the business may not operate normally thereby leading to a financial loss. Such losses will be covered by cyber liability insurance. The difference between income losses reimbursed by cyber liability insurance and other forms of income reimbursing insurance policies is that cyber liability insurance reimburses losses generated only due to cyber attacks. Whereas, other policies reimburse income losses due to other factors such as damage to the business premises, vandalisation of its property, death of an employee, etc.
- Online Threats and Extortion- Cyber liability insurance also helps cover for the extortion costs that a business might be bound to pay in case of a cyber attack. For instance, a hacker may threaten to leak sensitive information online unless they are paid a certain amount as extortion money. This extortion money that is paid by the business can be reimbursed under the cyber extortion coverage of the cyber liability insurance.
Directors & Officers Liability Insurance: D&O Insurance provides financial protection for directors, officers, and managers, in the event of a legal claim against them. It pays for defense costs and financial losses resulting from a lawsuit.
Business Interruption Insurance: Also known as Consequential Loss of Profit Insurance, this insurance would protect your business in times when it is unable to operate due to a disaster that is covered under your property insurance.
Office Package Policy: Office Package covers a whole range of risks that can come to your rescue. It covers furniture and fixtures, tools and machinery, office building, legal liabilities to third parties, additional rents, and even terrorism, in some cases. This insurance could help you out of a hole in a number of unexpected situations.
Professional Indemnity Insurance: Also known as Errors & Omissions Insurance, it protects professionals and businesses that provide services to clients against any legal liabilities arising due to the services provided. This insurance covers costs towards legal expenses, court and attorney fees and settlement and judgment costs.
Apart from the above, there are policies such as Group Health Insurance, Group Term Life, Group Accident, Product Recall Insurance, Contractors All Risk Insurance, that many are not aware about.
This article has presented a lucid account of some of the relatively unknown insurance policies especially keeping in mind the interests of small businesses. While setting up any business the company must be aware of the kinds of circumstances that can affect the business and take measures accordingly. While most businesses purchase the well-known insurances, lack of information regarding the unknown ones can put the business face to face with risks for which they would be unprepared. Get in touch with PlanCover to know more about your business specific insurance plans.