Insuring Intangible Assets: Why Your Business Needs More Than General Insurance

Insuring Intangible Assets: Why Your Business Needs More Than General Insurance

This article was updated on September 21, 2018.

Are you insuring intangible assets for your business? Almost every organization has risks associated with intangible assets, which make up more than 80 percent of the average value of a business, according to Forbes. The proportion can be even higher for small businesses in startup mode.

An intangible asset is property that is not physical in nature. Intellectual property is one of the main forms of intangible assets, including patents, trademarks, copyrights, proprietary software applications and even methodologies and processes.

Insuring intangible assets helps small business owners protect their intellectual property. These types of litigation cases are often expensive and drawn out, which can damage an organization financially. Fortunately, small business owners can avoid this risk by exploring their insurance options.

General Insurance Doesn't Cut It

There exists a mistaken belief that standard insurance policies provide protection for intangible assets, but that's often not the case. Some believe that advertising coverage contained in general insurance policies will cover intellectual property claims.

However, the April 2015 Betterley Report on intellectual property and media liability states that most insurance companies don't believe their general policies cover intellectual property, and most cases have ended in victory for the insurer. The report cautions firms to consider that coverage under such policies only applies to activities directly related to product or service advertising and that policies are narrowly written to reflect this.

Specialized Insurance Makes the Grade

Small business owners should consider taking out specialized insurance for their intangible assets. Specialized insurance protects businesses from the legal costs associated with defending or pursuing allegations related to infringements. Specialized insurance can cover patents, either against losses from third-party infringement or for those accused of infringing the rights of another patent holder. A broader form of insuring intangible assets, intellectual property insurance, expands coverage to trademarks, copyright and computer software design.

According to GrowthBusiness, intellectual property insurance covers both legal costs and resultant awards, various loss mitigation measures such as counter claims, and financial assistance that can help repair damage to reputations or brands. In addition to defensive claims, this insurance offers protection when one firm alleges that another party has infringed its intellectual property by providing the financial backing to bring a legal claim.

The knowledge and skills behind intangible assets are the lifeblood of many small organizations. Protecting those assets can make a big difference in a business's success. Small businesses should take a close look at the assets they have and consider not only whether they need specialized insurance, but they should also consider which insurance best fits their needs.