There are two categories of insurance: (1) mandatory and (2) voluntary.
State laws require workers compensation insurance for a business' employees, payments to the State's unemployment insurance program, and liability insurance on licensed vehicles. Most leases require the tenant to procure liability insurance. Bank real estate loans require casualty insurance on the real estate that is collateral for the loan. Some service contracts require the business providing the service to maintain liability insurance while performing the contract. Banks sometimes require credit life insurance on the owner, with the bank listed as beneficiary to the extent of any business debt to the bank.
Life insurance is also one way to fund the provision in an internal sale agreement that requires sale and purchase of the interest of an owner upon his or her death. Before deciding whether to fund a buyout upon death provision in an internal sale agreement with life insurance, one should run economic models of the cost of (1) setting aside after tax dollars to make such a lump sum payment, (2) paying for life insurance on the owner, and (3) paying the owner's heirs over a period of years with after tax dollars.
Disability insurance is one way to fund the provision in an internal sale agreement that requires sale and purchase of the interest of an owner upon his or her disability. It is important to have the definition of "disability" be the same in the policy as in the internal sale agreement, or the agreement must differentiate between a disability life insurance funded buy out and one that is funded by the after tax income of the buyer. The value of the interest may differ depending upon the source of the buy out funds.
Health insurance is considered by most employees to be a valuable fringe benefit. Without competitive health insurance, businesses will have a hard time finding and keeping good employees.
Ultimately, what voluntary insurance coverage a business procures is a business judgment call on the part of the business owner or manager, which involves weighting the cost of insurance against the risk of loss that the insurance is designed to protect the business from.
