Guide to Business Insurance

If you are going to go through the time and effort to start a business, you need to consider proper protective steps. Therefore, you want to purchase the right insurance coverage.

Your first order of business is to determine your specific insurance needs based on the nature of your business. What risks must be covered? How much coverage will be sufficient? You will then want to find and evaluate insurance providers or insurance brokers to determine which companies handle the types of coverage that suits your needs.

While shopping for insurance, you will want answers to several key questions such as:

What are the deductibles?
Are the coverage limits high enough?
What items or occurrences are excluded from coverage?
Are there any gaps in my coverage?

As you read farther and determine your own insurance needs, your list of key questions will grow depending on the nature of your business and the types of insurance coverage you are purchasing.

Liability Insurance

In today’s litigious society, liability insurance is more essential than ever. This type of insurance can protect you from lawsuits resulting from:

Any bodily injuries that occur on your premises to customers, employees, vendors or visitors
Injuries sustained as a result of the actions or negligence of one of your employees
Property damage caused by your employees

There are typically four types of liability insurance. General Liability Insurance is the more common form. In many instances it is part of a larger insurance package. Typically, it provides coverage for the above-mentioned occurrences. Some liability coverage will also include libel, slander and/or infringement on intellectual property. Read the fine print very carefully to determine what is and is not covered in such a policy.

A second type of liability coverage is called Professional Liability Insurance, which is essential in the service industry. This type of coverage protects professionals from claims made against them personally for errors made while they are performing their services. Examples of such insurance would include Malpractice Insurance carried by doctors or Errors & Omissions Insurance carried by financial advisors, attorneys, accountants, building contractors and other professionals.

third type of coverage, which you would strongly consider if you own a manufacturing business, is Product Liability Insurance. This coverage protects you in the event that an item manufactured or developed by your company is responsible for an accident, injury or death. From toy manufacturers to car manufacturers, there can be a significant risk of injury from the produced product. Naturally, the type of product being manufactured would indicate how much coverage you would need to purchase. Safety measures and precautions taken are factored in when determining your premium.

And finally, the fourth and newest type of liability coverage insures a business against the actions of the employer. The increase in lawsuits filed for wrongful termination, sexual harassment and/or discrimination has fueled the need for Employment Practices Liability Insurance (EPLI). This type of insurance typically protects you as the employer against such claims made by employees, former employees or business associates.

Occurrence or Claims-Made Policies

When buying liability insurance you can typically purchase either an “occurrence policy” or a “claims-made policy.” An occurrence policy can cover claims made months or even years after the incident occurred. The insurance company is obligated to review and, if warranted, pay for any claims made resulting from an incident that took place during the coverage period even if the claim is reported at a later date. The more commonly used “claims-made policy” provides protection only while the policy is in force and claims are made during that time frame. Prior act coverage may also be included, indicating that acts occurring within a specific time period (prior act coverage period) will also be covered. Claims-made premiums are typically lower than occurrence policies.

Many umbrella, or “business” liability insurance packages offered will cover your basic insurance needs. However, it is strongly advised that you read the fine print carefully to make sure there are no gaps where you specifically need to be covered.

Property Insurance

You can protect the assets of your business, including your equipment and the building or buildings in which you operate by having Property Insurance. Property Insurance typically covers your property in the event of theft or damage caused by fire, explosions, accidents or acts of nature. Additional office equipment can be protected by having Contents Insurance. If you are running a business from your home, you should also have such protection to cover your work related equipment, which may not be covered under a standard homeowner’s policy.

The amount of stock or equipment you maintain for your business operations will determine how much coverage you will need to purchase. By taking a detailed inventory of all property, equipment and stock you can determine the amount of coverage you will need. Include real estate such as buildings or garages you own.

It’s important to take your time in assessing and determining a value for your property. You will want to receive a fair amount of compensation for any goods lost or destroyed. Keep in mind that the higher the dollar amount of coverage, the higher the insurance premium will be. Therefore, you may elect not to cover certain items that may not be worth the cost of coverage.

Additional Property Coverage

There are other coverage areas you may choose to inquire about when shopping for Property Insurance. Depending on the insurer, some of these will be included and others may be purchased at an added cost. Nonetheless, they may be worth considering.

Undamaged stock protection, which covers undamaged items that can no longer be marketed because of damage to related goods.

Data or records protection, which covers loss of data or company records that were destroyed and will take time, and cost money, to reproduce.

Computer virus protection, which covers the loss of data and business through computer viruses.

Off premises property protection, which extends your property coverage to include protection at other locations such as trade shows, fairs, installations, exhibits or any place where your company is doing business with company-owned equipment.

Intangible coverage, which includes patents, copyrights and trademarks.

Property Insurance is sometimes offered by specific risks. For example, you may purchase Fire and Theft Insurance. Other companies will offer broad based policies that cover a variety of risks and potential hazards. The type of business you run, your physical location and the region in which you are doing business should all be factored into determining which risks are more likely to occur and potentially destroy your property and subsequently hurt or destroy your business.

How well you are protecting your business against such potential risks can determine how much you will pay for Property Insurance. For example, if you have excellent security measures, working sprinklers and adhere strictly to fire and building codes, you will pay less for Fire and Theft Insurance.

Property and liability coverage can be purchased together under a general business owner’s policy. However, the coverage is usually not as great as if you purchase them separately. Again, this will depend on your specific needs.

Business Interruption Insurance

Many small business owners do not realize the value of Business Interruption Insurance. If a business is forced to close because of a fire or due to disaster related damages of any kind, the business can suffer significantly, losing revenue during the time the business is closed and also losing customers to competitors. For any number of reasons, a business may also be forced to close, such as a power failure, a fire to a neighboring business or even nearby brush or wild fires such as those found in Arizona or Colorado. Having Business Interruption Insurance can save a business.

Typically, this type of insurance is part of a package or added when purchasing Property Insurance. A business will be covered for income they would have earned during the time they are unable to conduct business. This is generally based on the financial records of the company. The policy will also typically cover expenses the business still has to pay even though they cannot resume normal operations, such as the phone or electric bill.

As is the case with most types of insurance, there is a catch. Not unlike a deductible, there may be a waiting period of 48-hours before Business Interruption Insurance begins payment. It is still, however, worth inquiring about unless you can move your operations to another location entirely. In such a case you might consider Added Expense Insurance, mentioned below.

Deductibles

While your insurance company will pay most of the costs if you should suffer a loss covered under your policy, there is typically a deductible, which is the amount that they will not pay. Therefore, if your policy has a $1,000 deductible and you have $5,000 worth of damages, the first $1,000 will come from your pocket and the remaining $4,000 from the insurance company.

Typically, a policy with a low premium will have a higher deductible and visa versa. Depending on the risk involved, you can determine which option is better for your business. Sometimes it’s better to pay a higher premium and have a lower deductible to pay at the time of an incident, or accident, when you may need to watch your money closely as business operations may be slowed down or halted temporarily. Conversely, it may be better for your monthly cash flow to pay a lower premium, although you then carry a greater risk and will have a higher deductible. Work with an insurance professional to determine which is best for your needs.

Property Insurance deductibles can be on an individual claims basis or an aggregate basis. Depending on how many claims you anticipate making, you will determine which is best for you. Smaller companies that have few claims might find paying per claim to be advantageous, where a large company that may file many claims in the course of a year might be better with the cumulative payments made on an aggregate basis.

There are also several ways in which you will recoup money for property damages. A “cash value” basis is an assessment of the actual cost to replace the lost or destroyed item (less depreciation). A replacement cost will replace or repair an item at the current cost. Therefore, if the item stolen was a specialty piece of equipment, at the time cost $2,000, but today would cost $3,000, you would receive $3,000 to replace it at today’s cost. Replacement cost coverage is less common and will typically have you paying higher premiums then a cash value basis of payment.

Making a Claim

Buying insurance is typically the easy part, once you understand the language and find an insurance agent with whom you feel comfortable. Often the more difficult aspect of being insured is filing a claim and getting the insurance company to pay on the claim.

To make a claim you need to:

Notify your insurance company immediately when you experience a loss, damages or have a lawsuit filed against you or your business. You should also notify the police of a burglary, theft or accident immediately.
Read your insurance policy, which will explain your responsibilities to the insurance company
Assess the damages and/or list the items lost, stolen or destroyed
Find receipts or proof of ownership for as many lost, stolen or destroyed items as possible
In a lawsuit from a third party, gather any information you may have on the incident or reason for the lawsuit

Although you may elect to phone your insurance company, you should also send a written notice by registered mail to have verifiable proof of the date that you notified your insurance provider regarding a claim.

Keep in mind that some insurance companies will not cover any legal fees that you incur prior to notifying them about the claim. Therefore, if you run out and hire a lawyer prior to reporting the claim, you may pay out of pocket until you involve the insurance company.

The process of filing a claim will usually require that you have your paperwork in order. For example, if you have Business Interruption Insurance, you will need to show, on paper, how much business you are losing during the interruption period. As mentioned earlier in the book, it is essential to keep good records of your typical business activity. They will be used to determine how much income you are losing.

Once you file a claim, be prepared in case you need to do battle with your insurance company. If you feel you are not receiving a fair settlement, schedule a time to talk with your insurance agent, the claims adjustor and/or contact the customer service division of the insurance provider. Working with your insurance company, you may be able to reach a better settlement. If you are completely dissatisfied, you may hire an attorney familiar with insurance claims to help you with the settlement.

Ways To Lower Insurance Premiums

In an effort to pay lower insurance premiums, you can safeguard your business in many practical ways. Below are some suggestions:

Install sprinkler systems and make sure they are maintained

Have all electrical wiring properly installed by a professional and insulated

Maintain adequate and updated files of business transactions and personnel information including all signed agreements

Adhere to proper industry specific safety precautions

Have all employees trained in the proper use of equipment – keep manuals readily available

Make sure there is adequate lighting

Have all vehicles maintained, registered and inspected on a regular basis

Only allow employees with good driving records to operate a company vehicle

Have clearly marked emergency exits and hold safety drills

Limit access and the number of keys distributed to your primary facility and/or vehicles, warehouses or other facilities

Have an arbitration provision in all of your contracts for settling disputes and to reduce the costs and hassles associated with disputes.

Repair any damages, unsafe conditions or broken equipment

If you can make every effort to keep your employees (and yourself) safe from physical injury and you have employees read and sign policies covering conduct and behavior while employed, then you can typically lower your risks of accidents or lawsuits and in turn, lower your insurance premiums.

Other Types of Insurance

Along with purchasing Property Insurance and Liability Insurance (including E & O, Employment Practices, Product Liability and/or other forms of liability insurance), you will pay Unemployment Insurance as mandated by law. In addition you will typically pay Disability Insurance in accordance with state regulations. Other types of insurance you may elect to purchase include:

Health & Medical Insurance: The larger the business grows the more you will want to consider some type of health insurance to cover your employees’ medical costs and/or work related injuries. Having a health plan in place will typically attract better, more qualified applicants. Generally you pay for part of the total health insurance plan and your employees contribute a portion as well.
D & O Insurance: D & O Insurance is shorthand for a directors’ and officers’ insurance policy. The goal of this policy is to protect the officers and directors of a corporation from personal liability in the event of a claim or lawsuit against them claiming wrongdoing in connection with the company’s business.
Vehicle Insurance: This insurance covers liability for injuries caused by use of the vehicles owned and operated by your company as well as providing additional coverage for the vehicles beyond that of Property Insurance. The more your business relies on vehicles for deliveries or for transporting goods, the more you can benefit from such insurance.
Web Site Insurance: In today’s web conscious world, this insurance is growing in popularity and significance. Web Site Insurance covers claims made against the company’s web site or as a result of actions taken or items purchased through the company web site. You should first check your policies to make sure you are not covered elsewhere. Web Site Insurance can protect you against lawsuits made in conjunction with activities on your site. This may include personal privacy matters or even computer viruses that have resulted from visiting your site.
Key Man Life Insurance: This is a life insurance policy taken out on the owner of the business or the key person behind the business, in the event this individual dies. In a small business, which is closely run by one person, or a few key people, this type of insurance may be very worthwhile.

Choosing an Insurance Company

Before you sign with an insurance company, shop around. You will find that companies differ significantly. Below are several factors that you will want to weigh when choosing an insurance company.

Price: The same amount of coverage can cost $15,000 or $50,000 depending which company you choose. Get quotes from three or four companies for the same type of policies.

Stability: Insurance companies are evaluated and rated by various rating services. Among the most common are: A.M. Best Company in Oldwick, New Jersey, www.ambest.com; Moody’s Investor Services in New York City,www.moodys.com; Standard & Poor’s Insurance Rating Services in New York City, www.standardandpoor.com; and Weiss Research in Palm Beach Gardens, Florida, www.weissratings.com

Service: You will want to deal with an insurance company that provides fast and sufficient answers to your questions; reviews and responds to claims in a fair and timely manner; and provides both accessibility and a degree of comfort.

You can get more information on an insurance company by contacting your state insurance department, The Insurance Regulatory Information Network at www.irin.org, or the Better Business Bureau. You want to find out if there are many complaints registered and the validity of such complaints.

Word of mouth is one good way of finding an insurance company with which other businesses have had positive experiences. Also, try running a Google Web search on the particular type of coverage you need