Protecting Yourself and Your Startup Ideas
When you operate your own business, you need to make sure that you have adequate insurance, for yourself and for your business assets. Depending upon your business, you may also need to protect your business ideas using patents, trademarks or copyrights.
As a new small business owner, you need to give some thought to protecting yourself. Your first step is to talk to your insurance agent or broker about your options. At some point, depending upon your circumstances, you may need to discuss your options with your lawyer.
You'll need to buy insurance for your business. The policies come in many forms, and as the complexity of your business idea increases, so will your insurance needs. In addition, you'll need to protect your ideas and intellectual property through the use of patents, copyrights, and trademarks.
Buying Insurance for Your New Business
As a new business owner, you'll need to purchase insurance coverage appropriate to your business. First, you need to identify your business insurance needs. The best way to do that is by talking to an insurance agent.
You and your insurance agent can discuss the best way to get the coverage you need, at the lowest cost. Keeping your cost low is important at the outset of your business, since there will probably be many cash demands and few sources of cash inflow. Another way to keep the cost of insurance low is to purchase it through group plans that are often available through trade associations or other similar business organizations.
Below is an overview of the types of insurance that your business may need, and some of the issues you may have to address.
Disability insurance. Disability insurance provides benefits in the event of partial or complete disability. There are many factors involved in disability policies, such as the length of coverage (does the policy cover permanent disabilities as well as temporary ones?), whether the policy is renewable, and how long the waiting period is before the benefits begin. You should discuss your need for disability insurance coverage with your financial advisor and your insurance agent.
Business interruption insurance. A related form of insurance is business interruption insurance. This type of policy replaces lost income if an event, such as a fire or an incapacitating illness or injury, takes place. These policies can be expensive, and they frequently measure the size of the benefit by the business's historical income levels.
General liability coverage. General liability coverage is the basic coverage that you have on your business premises. It insures against employees, clients, and other visitors getting injured while at your business site. If you are working out of your home, make certain that your homeowner's policy will cover business claims. If it doesn't, talk to your agent about obtaining a policy or adding a rider to your existing homeowner's policy.
Health insurance. Health insurance is often cited by small business owners as among their greatest concerns because it's so expensive to obtain individually. A lot of new small business owners come from the corporate world where health insurance purchased at group rates was relatively inexpensive. But health insurance, purchased individually, is another matter. In fact, by some estimates, as a small business owner you will have to earn 140 percent of what you earned working for a corporation in order to replace all of your benefits, and one of the main reasons is the cost difference in purchasing health insurance on your own. Discuss the options available to you with your insurance agent and ask other small business owners what they do about their health insurance.
Did you know that some states have laws that create small business purchasing alliances, which provide a means for small business owners to pool their resources in order to purchase health insurance at group rates?
Also, check with trade or business associations in your field. Some of them offer health insurance at rates below what you can get by yourself.
Life insurance. Life insurance is paid upon the loss of the life of the insured. If your business relies on a partner, owner, or employee, you can take out insurance on that person to protect your business in the event of that person's death. Your attorney, accountant, and insurance agent can advise you on your life insurance needs.
Professional liability insurance (malpractice). Malpractice insurance protects you against claims resulting from professional services rendered by you to your clients. If you provide professional services, you are probably aware of the need for this type of insurance. If you need malpractice insurance, local chapters of professional organizations can usually recommend providers. For example, if you are an attorney and need malpractice insurance, the local bar association should be able to provide a list of carriers in the area.
Product liability insurance. Product liability insurance protects you against losses from injuries sustained by products produced by you. If you produce products that can possibly injure someone, even if that possibility is remote, you should consider obtaining product liability insurance. If you think you may need this type of insurance for your business, talk to your attorney and insurance agent.
Take Steps to Protect Your Ideas
Patents, trademarks, and copyrights are collectively known as intellectual property, and generally refer to the rights associated with intangible knowledge or concepts. Intellectual property may be a concern if your business is developing (or has developed) a product, process, or concept that you are going to market.
Intellectual property may also be a concern if your business is using a process that was created by someone else, whether you know about it or not. The laws surrounding intellectual property are quite complicated. If you believe that your business has any intellectual property concerns, you should ask your attorney what to do. If some legal work needs to be done, your attorney will probably recommend you to another attorney who specializes in this area.
Following is a short description of some of the issues pertaining to patents, trademarks, and copyrights:
Patent. A patent is a grant of a right to the inventor by the government. The right embodied in a patent allows the inventor of the right (or the patent holder, if the patent has been assigned) to exclude others from making or using the invention for a period of time, usually 20 years. Patent searches can be conducted to find out if someone else already has a patent on a product, process, or concept that you're going to build or market.
Trademark. A trademark is the right to use a specific name, word, phrase, symbol, logo, design, sound, color, or a combination of any of these elements, to identify your products and distinguish them from the products of others. The name must be sufficiently unique to identify your products; you can't obtain trademark rights to a generic term like "computers" or "coffee."
A service mark is similar to a trademark, but refers to the right to use a name to identify the source of services, and to distinguish that source from other service providers in the marketplace. If you have a name or some other item that you plan on using as a symbol of your business, it's a good idea to conduct a trademark screen to make certain that your name isn't already in use.
Copyright. A copyright is the right to reproduce a certain work if the work is in fixed form. A copyright is secured automatically when the work is created and is identified by the symbol ©; however, in order to be able to enforce a copyright, the work should be registered with the federal government. A copyright term is for the life of the creator, plus 70 years. Copyright infringement can be avoided by showing that the work in question was created independently of the copyrighted work.
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