Obtaining Insurance for Your Inventing Business
When you're running an inventing business you need business insurance, but what type and how much?
When you're running an inventing business you need business insurance. What type and how much you need depends on the extent of your business property and the nature of your inventing activities.
Business Property Insurance
Business property insurance compensates you if something happens to your business assets (such as computers, office furniture, equipment and supplies). If, for example, you lose all of your equipment in a fire or burglary, your business property insurance would cover the loss or some portion of it. If you work at home and have a homeowner’s or renter’s insurance policy, it will provide some limited business property coverage, but it may not be enough to cover all your property.
How much you have to pay for the insurance will depend in part on choices you make when you tailor the policy to your needs. Before you make these choices, be sure you know exactly what you are insuring -- and what it is worth.
Note that losses from earthquakes and floods normally aren’t covered by business property policies -- regardless of whether it is special form or named peril. You can obtain earthquake insurance through a separate policy or as an endorsement -- additional coverage added to your policy -- to your business property coverage. Similarly, you can obtain flood insurance through a separate policy. Unfortunately, if you live in a part of the country where such hazards are common, such insurance can be expensive (or may even be unavailable.)
General Liability Insurance
General liability insurance is not expensive; you can usually obtain it for a few hundred dollars per year. How much coverage do you need? There is no simple answer to this question. Some insurance experts suggest you obtain coverage equal to the value of all your business assets. Your business assets are all the equipment and other property you use in your inventing business. Others say you should get coverage equal to the largest damages award you might have to pay -- however, it is difficult for inventors to determine this amount. This is something to discuss with your insurance broker.
Traditionally, this form of insurance only covers you for things that you do or do not do while the policy is in effect. This means, for example, that if you make a claim for damages for an accident that occurred before you got the policy, you would not be covered. However, it is possible to get something called “claims made” insurance that covers you no matter when the actual injury took place, so long as you make the claim while you have insurance coverage.
Patent Infringement Insurance
If someone claims that you have copied, used or sold their patented invention without their permission they may sue you in federal court for patent infringement. As you might expect, defending such lawsuits can be very expensive. In recent years, some insurers have begun to provide patent infringement insurance to cover patent litigation costs.
Environmental Pollution Insurance
General liability insurance does not cover lawsuits arising from environmental pollution -- meaning fumes, irritants, waste or contaminants that your inventing business produces. You must purchase a separate policy for this coverage, which can be expensive. However, if you think you might have a problem with environmental pollution, this coverage may be worthwhile.
If you use your automobile for business as well as personal use -- for example, transporting supplies and equipment in addition to grocery shopping -- you need to make certain that your automobile insurance will protect you from accidents that may occur while you are on business. Some do and some don’t, so check. You may need to purchase a separate business auto insurance policy or obtain a special endorsement covering your business use. Whatever you do, make sure your insurer knows you use your car for business -- and not just personal trips or driving to and from your office. If you do not inform your company about this, it may cancel your coverage if a claim occurs that reflects a business use -- for example, you get into an accident on a business trip.
If you keep one or more cars strictly for business use, you will definitely need a separate business automobile policy. You may be able to purchase such a policy from your personal auto insurer.
Workers’ Compensation Insurance
General liability insurance doesn’t provide coverage for work-related injuries to your employees. Homeowner’s and renter’s insurance also does not provide this coverage. You must obtain a separate workers’ compensation insurance policy for this coverage. This insurance pays an injured employee’s medical expenses and provides replacement income while the employee is unable to work.
In some states coverage is mandatory. To find out, contact your state worker’s compensation insurance agency. Each state agency has a website describing your state’s requirements.
Even if state law does not require you to get this type of coverage, however, we recommend you do so. When you have workers’ compensation coverage, an injured employee usually can’t sue you claiming his injuries were caused by your negligence.
Most small businesses buy workers’ compensation insurance through a state fund or from a private insurance carrier. If private insurance is an option in your state, you may be able to save money on premiums by coordinating workers’ compensation coverage with property damage and liability insurance. Talk to your insurance broker.