How do I protect my business in the event of a disaster?
When a hurricane or earthquake puts your business out of commission for days--or months--your property insurance has got it covered. But while property insurance pays for the cost of repairs or rebuilding, who pays for all the income you're losing while your business is unable to function? For that, you'll need business interruption coverage. Many entrepreneurs neglect to consider this important type of coverage, which can provide enough to meet your overhead and other expenses during the time your business is out of commission. Premiums for these policies are based on your company's income.
Do I need liability insurance for my product?
Comprehensive general liability coverage insures a business against accidents and injury that might happen on its premises, as well as exposures related to its products. The catch is that the damage cannot be due to poor workmanship. This points out one difficulty with general liability insurance: It tends to have a lot of exclusions. Make sure you understand exactly what your policy covers...and what it doesn't.
You may want to purchase additional liability policies to cover specific concerns. For example, many consultants purchase "errors and omissions liability," which protects them in case they are sued for damages resulting from a mistake in their work. A computer consultant who accidentally deletes a firm's customer list could be protected by this type of insurance, for example
What is an umbrella policy?
In addition to the four basic "food groups" of worker's compensation, general liability, auto insurance and property/casualty coverage, many insurance agents recommend an additional layer of protection called an umbrella policy. This protects you for payments in excess of your existing coverage.
What happens if an employee gets in an accident on the job or while driving a company vehicle?
If your business owns a company car, there's no way around buying a commercial auto policy, which is meant to protect your business's assets in the event of an accident. This is an absolute must.
The gray area comes in when your employees use their personal vehicles for business purposes--even for something as simple as trips to the post office. If they get into an accident, their personal insurance will kick in, but anyone involved in the accident can also come after your business.
You need a hired and non-owned policy in this situation. It not only protects your business if your employee is involved in an accident on the way to a sales call, for example, but it will make your employees less apprehensive about using their personal cars for business, since they won't be held personally liable in case of an accident (and their personal auto policies won't be at risk). This type of policy will also cover cars rented for business use.
Does my homeowners' insurance cover my home based business?
Many entrepreneurs mistakenly believe they're covered by their homeowners insurance, but most homeowners policies limit loss of business property to $2,500, don't cover losses away from the home, and exclude liability coverage for business-related activity. As a homebased business owner, two types of insurance cry out for your checkbook: liability and property damage. Liability protects you against someone getting injured on your premises or by one of your products. Property damage protects against damage to a host of things, from computers to carpets.
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 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 especially workers compensation insurance. And if you rent space for your business, your landlord probably requires that you be adequately insured as well.
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 auto insurance policy), the cost of the suit-both defending it and settling it, if necessary-would be covered by your liability insurance.
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).
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.
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.
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 all of its 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.
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 (up to a certain limit).
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.
What is business income coverage?
Business income insurance may reimburse you for ongoing expenses such as utility bills while your business is closed due to a property loss. This coverage also provides your loss of net income that you would have earned if a covered cause of property loss had not occurred. This coverage may also cover losses due to down time or extra expenses needed to restore operations (such as additional property rental expense)
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, and some 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.
What is fire legal coverage?
Fire legal coverage provides coverage for you if you rent a business space and are held responsible for fire damages to that rented space. It does not apply to all business risks.
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 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 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 of $60,000 is $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.
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:
Who keeps an eye on the insurance companies?
Insurance is a heavily regulated industry. Every state has a department 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 with 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," or "direct writers" 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 showed that Americans prefer to work with independent insurance agents by a 2-to-1 margin over captive agents.
Why do I need certificates of insurance from sub-contractors?
An audit may require you to show proof that sub-contractors had their own insurance coverage. The sub-contractors' certificates of insurance will prevent you from being charged for their exposure.
I have a service business. Should I get insurance in the event someone sues me?
Before you start shopping for Errors and Omissions (E&O) insurance, answer this question: How real is your need for E&O insurance? Does the type of work you plan to do entail much potential for liability? If technology is involved--like being responsible for multimedia arrangements at sales presentations--then we would say yes. But some types of businesses allow you instead to create a client agreement that protects you, making the client assume the risk. If, on the other hand, contracts in your industry require E&O coverage, provide a warranty or guarantee, or have clauses that require you to indemnify or hold harmless your clients, you need to start shopping.
The cost of errors and omissions, also known as professional liability or malpractice, insurance, depends on a number of factors. Often, trade and professional associations offer the best buys in E&O insurance, so look into joining those first.