Is There Such A Thing As Bankruptcy Insurance?
There are a good number of insurance packages, which is why you might wonder if bankruptcy insurance is one of them.
Unfortunately, there’s no such thing as bankruptcy insurance. This means there’s no insurance you can purchase to directly protect your business against bankruptcy should your business fail.
But still, there are different forms of insurance you should consider to protect your family and your business from risks that might result in financial loss.
The first step is to consider the many reasons for company bankruptcies or in reality, the many causes of financial loss:
1. Business interruption
Disaster or catastrophic events can interrupt business operations. During this time, your business may suffer losses in income because your staff cannot make sales calls, your website is down, there’s no way to manufacture products, and lots more. Business interruption insurance is especially important for businesses requiring a physical location to do business even if that physical location is just a warehouse.
2. Employee lawsuit
Once you hire an employee, it’s important to implement insurance policies that can protect against lawsuits. Consider worker’s compensation insurance as the first. This covers medical treatment, disability, and death benefits in the event an employee is injured or dies from his work with the business. Even when your work environment seems low-risks, medical conditions such as carpal tunnel syndrome can result in an expensive claim.
3. Product recall
Product recall is an event that can happen at any time. Perhaps, due to mistakes during production or other safety issues. As long as your business manufacturers products for sale in the general market, it is a must-have to use product liability insurance. This does not mean you won’t strive to ensure that your products are safe. But product liability insurance works to protect your business in any case. And this coverage would be tailored to your specific product types and categories.
4. General litigation
There are numerous reasons your business can be dragged to court. This is why you need professional liability insurance. This insurance package is also called errors and omissions (E&O) and should cover your business against negligence claims due to harm as a result of mistakes or failure to perform. However, there is no one-size-fits-all policy for professional liability insurance. Every industry has its own set of concerns that will be addressed in a tailored policy curated for your business.
Public liability insurance is another cover against general litigation. It covers your business for legal costs and compensation costs you might have to pay if you are found liable to someone because you caused death or injury, loss or damage to their property, or economic loss due to negligence.
5. Property loss
Fire, storm, or theft are common events. This is why you should always insure your business property. As long as your business leases or owns a space, you need property insurance. This insurance would cover signage, equipment, furniture, and inventory. Regardless, also note that mass-destruction events such as earthquakes and floods may not be covered under standard property insurance policies. In that case, you might need a separate policy, especially if your area is prone to such issues.
Other kinds of business insurance policies to take the place of bankruptcy insurance
6. Home-based business insurance
If you run your small business from your home, you should also know that your homeowner’s policy will not cover your home-based business like commercial property insurance would have done. This is why you might need additional insurance to cover your inventory and equipment in the event of any problem.
7. Vehicle insurance
If your business uses vehicles (even when it’s a single vehicle), you should get fully insured to protect against liability should an accident occur. At the very least, you should insure against third-party injury such as compulsory third-party car insurance. However, we recommend a more comprehensive cover for that vehicle in an accident. If your employees are using their own cars for business, then this won’t affect you. However, an exception is if they are delivering goods or services for a fee.
Beyond these scenarios, financial service companies and commercial insurance carriers are creating new insurance products that might help offer a hedge against foreign currency fluctuations, bad weather, and interest rates. At the time, most of these products are only available for Fortune 500 companies. But in the future, there’s no doubt small businesses may also access them.
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Another way you can also protect your business or especially protect your personal assets from bankruptcy issues is by incorporating or becoming a limited liability company. These business structures offer protection to shareholders and business owners against personal liability for business debt.
Is your life insurance policy exempt from bankruptcy?
If ever bankruptcy should creep into any area of your life, you might be worried about whether your life insurance policy might become subject to your bankruptcy filling. Typically, your life insurance policy provides a financial safety net for you and your family, if anything should happen to you. Hence, your life insurance policy is an asset and has value – which is why you worry. The truth is that your life insurance can be exempt when you file for bankruptcy. But you must still disclose them on your bankruptcy petition and inform your lawyer, so they can take steps to protect that asset. Failing to include your life insurance policies when you file for bankruptcy could result in the asset not being protect. In worse scenarios, it becomes as though you are trying to deceive the court by hiding your life insurance policy and could cause the court to dismiss your bankruptcy case.