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The Consumer's Independent
Guide to
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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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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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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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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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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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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 businessowners 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
businessowners 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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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.
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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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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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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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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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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.
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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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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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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 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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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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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:
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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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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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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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Kennedy Professional
Insurance Agency
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