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If you own your own business or are a partner in
one, you're probably already familiar with risk. After all, few things in life
are riskier than launching and running your own small business. Part of the risk
of any small business is the loss of critical tools and property or liability to
others. Either of which can cause loss of income or even force you to close your
doors.
I'm just getting my business started. Do I need insurance right away?Yes, because the chance that you could suffer a
loss begins with the first day of business. You can't get help after the fact.
If you suffer a loss and have no insurance or have improper or insufficient
coverage, there is very little, if anything, your insurance agent can do to help
you. You must be prepared for the risks that are inherent in any business and
the losses, sometimes catastrophic, that they can cause. I don't have any major business assets. Why do I need insurance?Every business has some property. And, when you
think about it, your business is your property. Just like your home and your
car, your business needs to be protected from loss, damage and liability. In
addition, your business is your source of income, so you need protection from
the potential loss of that income. Is insurance coverage different for different businesses?It can be. Many small businesses are now insured
under package policies that cover the major property and liability exposures as
well as loss of income. A common package policy used by many small businesses is
called the Business owners Policy (BOP). What types of property do I need to insure?Your business may not possess all the following types of property, but you can use this list to make sure that you have considered all the property categories and any insurance coverage that may be warranted:
To establish the amount of insurance you need on
each, your insurance agent can help you review the types of property you own and
their uses. Some of these items are covered in the basic policies. For others,
coverage can be added by an endorsement, or rider. And some, like money and
securities, may not be covered by a standard commercial policy and may require a
second, separate policy. What types of property insurance should I consider buying?The best thing to do is to take a complete
inventory of all your business property, determine their value and decide if
each is worth insuring. Then check to see that the items on the inventory list
are included in the basic business property policy and covered for the correct
amount. If not, ask your agent about the cost of purchasing additional coverage
to meet your needs. Even if you do not own a boiler, you may need this coverage. The term "boiler and machinery insurance" is gradually being replaced with terms such as "equipment breakdown" or "mechanical breakdown" coverage. This insurance provides coverage against the sudden and accidental breakdown of boilers, machinery or equipment, including computer systems and telephones/communication systems. Coverage usually includes reimbursement for property damage, expediting expenses (e.g., express transportation charges), and business interruption losses. Builders Risk Coverage Covers buildings in the course of construction. Depending on the policy, this coverage can be for either the building's value at the time of loss or its full value at the time of completion. Building Ordinance Coverage Provides coverage when a community has a building ordinance stating that when a building is damaged to a specified extent (usually 50 percent), it must be completely demolished and rebuilt in accordance with current building codes rather than repaired. Special attention is required when establishing the amount of insurance. Business Interruption Insurance Covers the loss of earnings as a result of damage or loss of business property. Reimbursement for salaries, taxes, rents, and other expenses plus net profits that would have been earned during the period of interruption can be included. Commercial Crime Coverages Covers money and securities, stock and fixtures against theft, burglary and robbery both on and off the insured premises and from both employees and outsiders. Debris Removal Coverage Covers the cost of removing debris after damage from fire or other covered peril that requires debris removal before reconstruction of the damaged building can begin. This is not part of fire insurance coverage and must be added as an endorsement. Fidelity Bonds Covers business owners for losses due to dishonest acts by their employees. Glass Coverage Provides coverage for glass breakage such as store windows and plate glass on office fronts. Inland Marine Insurance Primarily covers property in transit such as from warehouse to warehouse or warehouse to retail store, as well as other people's property left on your business premises, such as clothes left at a dry cleaning business or an employee's personal effects left in the company locker room. Insurance for Loss of Lease Income or Value Covers the loss of income when rental property is
damaged or destroyed and the loss of value when the owner of the rental property
also used some of its space for business. If the tenant of the destroyed or
damaged building is forced to rent space elsewhere at a higher cost, this is
called loss of lease value. How much property insurance do I need to buy?There is no one answer to this because each
business is different. You can consult with your agent on the monetary limits
needed to cover your potential for loss. Obviously, a one-person accounting firm
will need to purchase less insurance than a store with a substantial inventory.
But each will need to make sure that all necessary business property is covered,
that the limits of liability are sufficient to protect the owner and the
employees, and that loss of income is protected. Who decides how much my business property is worth?Property insurance can be purchased on the basis
of the property's actual value, on its replacement cost, or on an agreed amount.
The differences between the three are: The replacement cost of the item minus depreciation. For example, a new desk may cost $500. If your 7-year-old desk gets damaged in a fire, it might have depreciated 50 percent. Therefore, you would be paid $250 for it. Replacement Coverage The cost of replacing an item without deducting for depreciation. So today's cost for a desk of a size and construction similar to the 7-year-old one damaged by fire would determine the amount of compensation. If it costs $500 today, that would be the replacement coverage. Agreed Amount Art objects, antiques and other unique items are usually insured at an amount agreed upon when the policy is being written. An appraiser values the goods to be insured and the business owner and the insurer agree upon an amount that the insurer will pay if the goods are destroyed due to an covered peril. Check your policy. If you prefer replacement
coverage and do not already have it, this coverage can be added to your policy.
Inflation-guard coverage, which automatically increases your insurance amount a
certain percentage, protects against rising construction costs. Your agent can
advise you of the costs involved. What kinds of events does business insurance cover?Basic property insurance policies generally cover
losses caused by fire or lightning and the cost of removing property to protect
it from further damage (e.g., removing inventory or equipment from a damaged
building so it won't be stolen). "Extended perils," including windstorm, hail,
explosion, riot and civil commotion, and damage caused by aircraft, automobiles
or vandalism, are usually covered in a standard policy. Other important perils,
often not covered and considered "optional" in almost all standard policies,
include earthquake and flood damage, building collapse, and glass breakage. Everybody seems to be suing everybody else these days. What if someone sues my business?No business can afford to be unprepared for a
lawsuit. Liability insurance protects your business assets when the business is
sued for something the business did (or failed to do) that contributed to injury
or property damage to someone else. Liability coverage extends not only to
paying damages but also to the attorneys' fees and other costs involved in
defending against the lawsuit - whether valid or not. What about the cars and truck that I have in my business? Is the coverage like what I have on my personal car?Yes, but in addition to covering the vehicles you own for liability, medical payments, uninsured motorist coverage, comprehensive and collision, it also covers you when you rent a car and when your employees are operating their personal cars for your business. Be sure to review your auto exposures with your agent. Will I need to protect my employees in the event they are injured on the job?Yes, and in most states there are legal
requirements that must be met, and for which you may be responsible. State laws
vary, but most states require that you carry some form of workers compensation
insurance. This protects the employee and also offers you the business owner a
degree of immunity from lawsuit by an injured employee. I keep one auto strictly for business. Do I need a separate policy?Yes. Whether you have one vehicle or several, you
will need a business automobile policy. Such a policy covers any motor vehicle
used in your business including cars, vans, trucks and trailers pulled by
trucks, and offers coverage if they are damaged or stolen. It also covers
liability if the business vehicle is in an accident and the driver is at fault.
This policy is not for truckers or commercial garages. They have special
liabilities and must secure special policies that deal with their different
needs. Businesses that have a fleet of vehicles will of course have different
needs than a business with one or two, and their policies will reflect these
differences. I just signed a 3-year lease to open my business. Why does my insurance agent want to see my lease?Whether the business lease is for a building or
for equipment, the agent needs to determine who is responsible for insuring the
leased items - you or the lessor. For leased buildings or building space, there
are other factors to be considered, such as who is responsible for plate glass
coverage and whether your landlord requires tenants to carry minimum amounts of
liability insurance, and the extent of a hold harmless agreement. These and
other situations covered in the lease affect the amount and kinds of insurance
you need. My business requires that I store gasoline on the premises. Do I have to have special insurance?Yes, if your business transports, stores or uses
toxic materials, you are required by law to have a special environmental
liability policy. If these materials should be discharged accidentally into the
water or leak onto the ground due to a covered peril like fire, the cost of
extracting the pollutant from the business premises is covered up to the dollar
amount set forth in the property section of your policy. I run a dry-cleaning business. What happens if fire destroys many of my customers' clothes that were stored in the building?The standard business owners policy contains coverage for loss due to fire, including coverage for property of others the insured business was repairing, storing, or otherwise servicing in order to earn money. The coverage only applies, however, if the business is legally liable. Thus, if lightning causes the fire, the business is not responsible because lightning is out of the control of the business owner. There are other policies, called Bailee's policies, that provide even broader coverage for your customers' possessions. A Bailee's policy is often useful to help maintain good customer relations. What if the clothes I manufacture are damaged in shipment. Does the shipping company reimburse me or do I put in a claim to my insurance company?Shipping companies often carry insurance to cover
their losses. However, the shipping company's insurance may be too low or you
may have difficulty collecting on a claim after signing for the shipment.
Therefore, "property in transit" insurance is available to cover your property
being transported by truck, rail, ship, or other means of shipment. Also, the
firm you hire to transport goods and the contract you sign with them may affect
your need for coverage. Make sure you check with your insurance agent. I work out of my home. Will my homeowners insurance cover my business?Yes, but on a very limited basis. Loss of
business property is usually reimbursed up to $2,500 in the house and up to $250
for business property damaged or lost away from the premises. Even if your
business is a sideline such as a craft studio, these limits may be too low to
cover all the equipment and materials you have accumulated. It's also important
to know that no business liability coverage is included in a standard homeowners
policy. Your insurance agent can help you ascertain what, if any, additional
coverage you need. This additional coverage may be added to your homeowners
policy or found in a separate commercial policy. What is coinsurance all about?Most business policies include a "coinsurance"
clause stipulating what percentage of the total value of your property must be
insured in order to be fully reimbursed for a loss, even a partial one. (Most
losses are partial.) If you insure for less than that amount, your insurance
company may impose a "coinsurance penalty" on your claim. As a retailer, do I need to worry about product liability?As long as you do not alter the products you
receive from manufacturers for resale, you have only a secondary liability. The
product manufacturer is the first liable party. General liability insurance
usually covers this secondary liability, but you should check with your agent to
be sure your business is adequately covered. Recognize, too, that your liability
policy will pay Now that my business is established, I think it is time to offer my employees some benefits. What do I need to know?Employee benefits generally include health
insurance (sometimes including dental and vision benefits), term life insurance,
and possibly a retirement program. Group disability insurance is also available,
although employers and employees opt for this benefit less frequently. Return to Index Remember that all insurance premiums are based on the risks involved. The insurance company evaluates the situation to determine the risks - or potential for losses - and bases its rates on the results. Therefore, deliberate steps you take to lower your risks not only can help safeguard your business but also may make you eligible for lower insurance rates. Consider these steps:
Who keeps an eye on the insurance companies?Insurance is a heavily regulated industry. Every
state has some sort of department, administration or agency that regulates and
monitors every insurer operating within the state's borders. In addition to
approving rates, your state's insurance department is involved in all insurance
matters on behalf of private citizens and businesses. It also issues operating
licenses to insurers and agents, based on their ability to meet the state's
requirements for conduct and knowledge about insurance issues. What should I look for in an agent?Agents are there to help you. At the most basic
level, any agent should be able to answer all of your questions about insurance,
provide you a thorough assessment of your insurance needs, and offer you a
choice of insurance products to meet those needs. Also, any insurance agency
should provide you with prompt, quality service in the case of a claim. |
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