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The Consumer's Independent
Guide to 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. Index
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 Businessowners 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. Return to Small Business Index
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 businessowners 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 Small Business Index
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:
Return to Small Business Index 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. |