I'm
just getting my business started. Do I need insurance right away?
I
don't have any major business assets. Why do I need insurance?
Is
insurance coverage different for different businesses?
What
types of property do I need to insure?
What
types of property insurance should I consider buying?
How
much property insurance do I need to buy?
Who
decides how much my business property is worth?
What
kinds of events does business insurance cover?
Everybody
seems to be suing everybody else these days. What if someone sues
my business?
What
about the cars and truck that I have in my business? Is the coverage
like
what I have on my personal car?
Will
I need to protect my employees in the event they are injured on the
job?
I
keep one auto strictly for business. Do I need a separate policy?
I
just signed a 3-year lease to open my business. Why does my insurance
agent want to see my lease?
My
business requires that I store gasoline on the premises. Do I have
to have special insurance?
I
run a dry-cleaning business. What happens if fire destroys many of
mycustomers'
clothes that were stored in the building?
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?
I
work out of my home. Will my homeowners insurance cover my business?
What
is coinsurance all about?
As
a retailer, do I need to worry about product liability?
Now
that my business is established, I think it is time to offer my employees
some benefits. What do I need to know?
Can
I do anything to lower my insurance premiums?
Who
keeps an eye on the insurance companies?
What
should I look for in an agent?
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.
Also, many states
and local jurisdictions require that businesses be insured to begin
operating. And if you rent space for your business, your landlord probably
requires that you be adequately insured as well.
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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.
Generally, there
are two types of insurance - property and liability. Property insurance
covers damage to or loss of the policyholder's property. And if somebody
sued for damages caused by you or your possessions (other than a vehicle
covered by your insurance policy), the cost of the suit - both defending
it and settling it if necessary - would be covered by your liability
insurance.
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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).
Generally, these
package policies provide the small-business owner more complete coverage
at a lower price than separate policies for each type of insurance needed.
Your agent can help you decide which policy or policies are right for
your business. Additional coverage for property, liability or perils
or conditions otherwise excluded (e.g., flood protection) can be purchased
as endorsements to a standard policy or as a separate, second policy
called a difference-in-conditions (DIC) policy.
Because businesses
vary, it is impossible to have a standard policy to cover all contingencies.
Also, some businesses, regardless of their size, do not fit the profile
of a standard business owners policy. For example, restaurants, wholesalers
and garages have special liability needs that are not met in the standard
business owners policy. Your insurance agent can advise you of the best
policy (or policies) to protect you and your business.
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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:
Buildings
and other structures (owned or leased)
Furniture,
equipment and supplies
Inventory
Money
and securities
Records
of accounts receivable
Improvements
and betterments you made to the premises
Machinery
Boilers
Data
processing equipment and media (including computers)
Valuable
papers, books and documents
Mobile
property such as automobiles, trucks and construction equipment
Satellite
dishes
Signs,
fences, and other outdoor property not attached to a building
Intangible
property (good will, trademarks, etc.)
Leased
equipment
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.
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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.
You also need
to consider your business situation. Are you planning a major expansion?
Does your inventory have a decidedly peak season (like a toy store in
December)? Or does it fluctuate throughout the year (like a clothing
store)? Is your liability limit high enough in light of the new job
contract you just signed? Business policies are designed to be added
to or subtracted from to meet your needs. Be sure to discuss changes
to your business with your agent so that he or she can be sure your
policy still provides adequate coverage.
Some common
additional coverages for business property include (although this list
is by no means all-inclusive):
Boiler
and Machinery Insurance
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.
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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.
In addition,
each business has unique needs and situations that must be handled.
If the store happens to be located on a flood-prone area, the owner
should invest in flood insurance. The accountant may wish to purchase
reconstruction-of-accounts-receivable insurance to cover the loss of
accounting records. The costs of reconstructing those records, money
borrowed because of delayed payments due to the records being lost,
and lost payments from those clients whose records cannot be reconstructed
are all covered.
Liability protection
also will vary from business to business. A retail business is more
at risk for potential suits than a business that is not open to the
public. Also, in some states, courts tend to respond more positively
to lawsuits, increasing both the likelihood of successful lawsuits and
the amount of damages awarded. In today's lawsuit-conscious society,
higher liability limits are extremely important and relatively inexpensive.
Your agent can help you decide how much coverage is needed for your
particular business.
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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:
Actual
Cash Value
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.
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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.
Property insurance can be written as either "named peril"
policies or so-called "all risk" policies. A named peril policy
provides coverage for those perils specifically named in the policy.
An all risk policy covers loss by any perils not specifically excluded
in the policy. The term "all risk" does not mean that all
perils will be covered and, to avoid confusion, is often replaced with
the term "special form" or "special causes of loss"
coverage.
Check with your agent on the perils covered by your policy. If you wish,
additional coverage can be added.
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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.
The standard
business owners policy provides liability coverage, as does a separate
policy known as a commercial general liability (CGL) insurance policy.
Generally, commercial liability insurance, whether purchased in a separate
policy or as part of a standard business owners policy, will cover bodily
injury, property damage, personal injury or advertising injury. The
medical expenses of a person or persons (other than employees) injured
at the business or as a direct result of the operations of the business
are also covered.
Usually excluded
from both types of liability insurance policies are suits by customers
against a business for nonperformance of a contract and by employees
charging wrongful termination or racial or gender discrimination or
harassment.
Check with your
agent about the best liability protection covering all types of situations
that may arise in your business.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
Here's how
coinsurance works:
Let's say you
have a building insured that you believe would cost $100,000 to replace
and a coinsurance penalty in your policy of 80 percent. You insure the
building for $80,000, thinking you have fulfilled the coinsurance clause.
A fire loss causes $60,000 worth of damage, so you submit a claim. Your
insurance company subsequently determines that the replacement cost
of the building is actually $150,000. To determine how much to pay on
the claim, the insurer divides the amount of insurance you purchased
($80,000) by the amount you should have purchased (80% of $150,000 or
$120,000). The result (two-thirds, or $40,000) is the amount of your
claim the insurer will pay.
Thus, even for
a partial loss within the monetary limits of your policy, you will receive
only two-thirds of the amount claimed. If the building had been insured
for at least $120,000, the insurer would have reimbursed you for the
full amount of the loss.
You should check
with your agent to make sure you have adequate coverage. Adding an endorsement
to the policy that automatically increases policy limits to keep pace
with inflation is a good idea.
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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
defense costs, whether or not a judgment is rendered against you.
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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.
Employers can
provide coverage for their employees alone or for the employees and
their families. Cost is usually the determining factor. With the high
cost of health insurance in the United States today, employers are more
likely to ask employees to pay some or all of the costs of health insurance
for their families and sometimes for the employees themselves.
Depending on
the size of the group to be insured, the business may serve as the policyholder
for the group's insurance. However, for many small businesses, the insurer
will pool them together in a multiple-employer trust. The trust itself,
rather than any single employer, is the policyholder. This enables smaller
businesses to benefit from the lower premiums and other services enjoyed
by large groups.
Small businesses
can also sometimes obtain employee benefit insurance through their trade
or professional association. Your best bet as a small business operator
is to find a way to join a larger pool seeking benefits. Check with
your agent on the options available to you.
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Can
I do anything to lower my insurance premiums?
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:
Maintain
adequate lighting throughout your business premises.
Keep
electrical wiring, stairways, carpeting, flooring, elevators, and
escalators in good repair.
Install
a sprinkler system, smoke and fire alarms, and adequate security devices.
Keep
only a small amount of cash in the cash register.
Keep
good records of inventory, accounts receivable, equipment purchases
and the like. Consider
keeping a second set of records off-site, such as with your accountant,
insurance agent or at home.
Make
sure your employees have good driving records.
Make
sure your employees know how to lift properly and use all necessary
safety equipment, such as goggles, gloves, and respirators.
Consider
using the services of a risk manager. Such an outside consultant can
advise you of any safety or environmental regulations you may have
overlooked or not been aware of and talk to your employees about safety
practices.
You
may also wish to raise your deductible where appropriate to lower
your insurance premiums. How high to raise the deductible should be
governed by how much you can afford to pay out of pocket. Be careful
not to raise it so high that you cannot cover it should a loss occur.
Finally,
make sure your agent is familiar with your business and the risks
inherent in it. He or she should be able to advise you on risk management
techniques and their benefits to both you and the insurer.
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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.
Your insurance
company and agent work closely with your insurance department to make
sure you are getting the best and fairest possible service within the
state's guidelines. If you ever have difficulty settling a claim, work
with your agent to resolve the difficulty. However, you can also contact
your state's insurance department if you wish to know more about your
options and rights as an insurance consumer.
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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.
Just as important
is the level of professional confidence and personal comfort you feel
with the agent. Many people stick with the same insurance agent for
decades, even generations. It helps to find an agent you can get to
know and trust.
An important,
but sometimes overlooked, factor to keep in mind is that there are two
kinds of insurance agents: those who represent only one insurance company
and those who represent more than one insurance company.
Agents offering
through their agencies only the policies of one insurance company often
are referred to as "captive agents," because the company they
represent does not allow them to offer their customers competitive alternatives.
By contrast,
agents offering through their agencies the policies of more than one
insurance company are called "independent agents," because
they can shop around for their customers for the best insurance values
among a variety of competing companies.
A nationwide survey in 1994 showed that Americans prefer to work with
independent insurance agents by a 2-to-1 margin over captive agents.
You can be sure you are dealing with an independent agent when you see
this symbol on the agent's signs, letterhead and business cards.
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Business Insurance
