Business Insurance Questions

There are a few types of insurance every business needs. You probably bought policies that covered those areas when you first opened your doors-but have you kept up with your business's changing needs? Let's take a look:

Business property coverage. This insures your office equipment, inventory, and the building you own or tenant improvements you've made to space you rent against a range of perils, from fire to windstorms and some water damage-roof leaks are usually covered; floods aren't.

How much coverage do you need? The simple answer: What would it cost to get your business afloat again in the event a fire burned everything you own to cinders? "Determine how much your property is worth. That's how much coverage you need," says Madelyn Flannagan, director of research and information for The Independent Insurance Agents of America.

Take note: This isn't a static number. You'll want to continually update your limits. "Many business owners neglect doing this," says Flannagan.

Liability. This is what covers lawsuits from accidents that cause bodily injury (a delivery person slips on your steps), accidents that cause property damage (you sell a defective lubricant that burns out a customer's car engine), and a grab-bag of miscellaneous claims (like libel, slander and false advertising). "Don't buy less than $1 million in liability coverage," says Flannagan.

Buy just liability and property protection, and that's a start. But there are many more kinds of coverage you need, some of which are even required, either by law or by insurers. Below, we've assembled a grab-bag of policies. You probably don't need them all. But we'll bet you need more than you have.

Disasters. Many natural disasters-earthquakes and floods, for instance-aren't covered under standard property insurance policies. Coverage is available, sometimes from government agencies, sometimes from private insurers, and costs vary wildly. Earthquake insurance in California is pricey; in Texas, it's very cheap. If disaster insurance is inexpensive for your area, that's probably because insurers know it will rarely be needed. "[But] business owners ought to think hard about buying it," says Jones. "I had one client whose business was in a 500-year flood plain [meaning the best scientific guess is that it would flood only once every 500 years], and he got flooded out last year." Ask your agent how much disaster insurance would cost you. If it's expensive, that's all the more reason to buy it-the proof you need it is that insurers label your area "high risk."

Umbrellas. What happens when a lawsuit someone files against you brings in a verdict that exceeds the limits of your liability protection? It's bad news for you, unless you have umbrella protection, which provides, usually affordably, for "super limits" on protection, says David Sterling, president and CEO of Sterling & Sterling, a Great Neck, New York, insurance brokerage firm. An umbrella kicks in only when the ceiling of the basic, underlying policy is reached; that's why it's cheap. The umbrella issuer is betting you'll never exceed your basic policy limits. Buy an umbrella policy, and you can dramatically extend your coverage for a small amount of cash. How much coverage do you need? That's your call, and your answer will hinge on the size of your business and the size of jury awards in your state. A local insurance agent should be able to guide you in picking an amount of coverage that will bring you peace of mind.

Employment Practices Insurance. "Ten years ago, this coverage was non-existent; now it's widely available," says Olmstead. And it's also widely needed. If an employee sues your company for sexual harassment, wrongful termination, job discrimination, or any of the other increasingly popular claims alleging failures in your employment practices, this coverage kicks in with money so you can mount a legal defense and, if necessary, pay a settlement or damages. "There should not be a business without this coverage. Get it," says Sterling. He pegs the typical cost for a business with less than 100 employees at about $5,000 per year.

Wheels. "An automobile owned by a business must have a commercial liability policy [covering it]," says Flannagan. Think you can get by simply tacking company cars onto existing personal policies? Don't. In the event of a claim, an insurance carrier might be able to void the policy for misrepresentation. "A commercial policy will cost at least 25 percent more than a personal policy, but you need it," says Flannagan.

However, there's a bonus that comes with commercial coverage. A nominal sum-often just $25 per year, says Flannagan-will let you add on hired and nonowned auto coverage. This is insurance industry jargon that translates into coverage for employees who use their own cars for work-related tasks (remember that pizza pick-up that could have wiped out your business?) and may also cover rental cars when you travel on business (read the fine print or ask your agent to be sure). "Hired and nonowned coverage is a real bargain. And almost every business needs it," says Flannagan.

Professional Liability. "Service businesses need this coverage, but a majority don't have it," says Sharon Emek, CEO of Metro Partners, a New York City company that manages insurance agencies. Professional liability covers cases in which a client experiences disastrous results after following your advice-and sues for damages. General liability policies don't cover these risks, but professional liability coverage does, and it's inexpensive. The peace of mind is worth the few dollars it costs.

Workers' Comp. Most states require this coverage, which offers financial protection against medical payments and disability income for employees injured on the job. Charges are set on a per-worker basis and depend heavily on your industry. Charges for an advertising agency will be nominal (probably less than 25 cents per $100 of payroll), while a roofing company will be charged much more (maybe $20 per each $100 of payroll), says Flannagan.

And if your work force is expanding, you should update your worker's comp coverage as you go along to avoid being hit with a large charge at the end of the year, advises Jones.

Business Interruption Insurance. Picture this: You're insured against fire, so when your business burns down, you'll have the cash to reopen-but it will take you many months to rebuild. Can you afford that delay? About 40 percent of businesses that have their operations interrupted never recover, says Jones. Business interruption insurance is a cure because it provides you with the cash you need for rent, payroll and taxes, and may also cover lost profits. "This is often a neglected but very valuable protection," says Jones.

It's even more valuable, she says, if you buy a low-cost add-on called "extra expense." This coverage makes up the difference between "before loss" business income and the income that comes in after you reopen. It will also cover such "extra" costs as installing new phone lines. This coverage is taken out by only a handful of small-business owners because few know it exists, says Jones.

Electronic Data Processing. Are your computers covered? What about laptops that are off premises? With some property policies-only some-the answers are "yes." In other cases, specialized electronic data processing (EDP) policies cover theft, loss and, possibly, costs incurred when computers break down, says Flannagan. She adds that often, even when policies do cover computer gear, the limits aren't high enough, especially if you or your employees travel with computer equipment. Ask your agent whether you're covered. If you're not, ask about special EDP policies.

All-in-One. Too many choices? Insurance companies understand that busy entrepreneurs don't want to spend days studying the minutiae involved in evaluating numerous policies. The upshot is the increasing popularity of one-stop-shopping policies-sometimes called "business owner policies," or BOPs-that combine many protections under one plan. A case in point is The Hartford's Spectrum basic policy, which covers business property and business liability, equipment breakdowns, employment practices liability, and business income.

Many other insurers offer similar programs, so shop around. But always ask about all-in-one plans because usually, any cost savings that might be realized by piecing together coverage รก la carte are far outweighed by the many hours of hunting it will take to assemble the elements.

How Much Is Enough?
"I'm asked that all the time," says Jones, and her answer is always the same: "I can't tell you." She's not being coy. Only a clairvoyant would try to predict what risks you'll encounter.

So this is what Jones advises her clients: Buy as much as you can afford.

Too vague-and possibly self-serving? Sterling tells clients, "Insure against catastrophes, not small things." And make sure to carry the coverage you need to protect you against events-like flood, fire, product liability or sexual harassment suits-that could lead you into bankruptcy.

One tip Sterling offers is that coverage limits can be lifted without paying higher premiums if you increase your deductibles. Another tip: Avoid filing petty claims. "Get a reputation for doing that, and you may find insurance hard to buy," says Sterling, who adds that even if an insurer will take you on, there's no free lunch. "Rates go up as claims increase." Annual Check-Ups Buying adequate insurance doesn't mean your job is done. Sit down at least once a year with an insurance professional to review your coverage and how it fits your business-twice a year if you're growing rapidly, says Flannagan.

Why? As businesses grow, entrepreneurs rarely update their coverage-and that $100,000 in liability protection you bought five years ago just won't safeguard the $5 million business you have now. Meet with a pro to discuss how your business has changed, and in an hour or two, you'll know what you ought to be doing to reflect your present reality.

Insurance professionals are eager to pepper us with long lists of common entrepreneurial errors when it comes to insurance-and there are many-but boil it down, and small-business owners' mistakes can be distilled into this: "Entrepreneurs confuse their personal insurance needs with their business insurance needs," says Brooks. The agent who sells you your home-owner's policy probably isn't right for handling your business's insurance. Find an agent who knows business, especially your line of business.

10 Mistakes You Definitely Don't Want To Make:

  1. Carrying no coverage at all. Shocking as it sounds, that's what 46 percent of you do.
  2. Not obtaining commercial insurance on company cars. A classic case of penny-wise and pound-foolish.
  3. Purchasing inadequate liability coverage.
  4. Not buying disaster insurance. A smile may be your umbrella, but it won't rebuild your business after a flood or quake.
  5. Using the wrong agent. Agents who deal mainly in personal insurance often know beans about business insurance. Use a pro who knows your industry.
  6. Not purchasing employment practices coverage. Can you spell "harassment"? If a disgruntled employee can, this coverage could save you from the poorhouse.
  7. Not covering family members under workers' comp. It's the law: You've got to do it.
  8. Not shopping around. Policy rates may not vary much, but policy fine print does. Read competitive policies closely and pick the one that best meets your needs.
  9. Filing too many claims. Do it, and you'll pay more for every policy. Save your claims for real disasters.
  10. Not doing annual insurance checkups. A growing business has to do this yearly. Sit down with an agent and review your needs-it's a key to sustained success.
How to put it all together

Once you've reviewed some of the coverages available to you and given some thought to your particular business, its assets, and possible threats to its legal and financial health, it's time to think about how best to put all the pieces together in the most comprehensive and cost effective way.

If your headquarters is also your home, you may have special considerations in selecting the right business package, please send us an email for details. For all other businesses, there are basically 3 ways to buy insurance.
  1. Monoline Coverage a single type of coverage (many people ask for simply liability coverage, for example).
  2. A Commercial Package Policy (CPP) allows businesses to purchase multiple lines of insurance. This concept was developed to prevent gaps and overlaps in coverage under individual policies. For example, General Liability and Commercial Auto policies are designed to integrate with each other.
  3. A Business Owner's Policy (BOP) is very similar to CPP. The difference is that an insurance company will develop their own policies that combine specific coverages. A BOP is essentially a packaged insurance solution for a specific type of business such as a general contractor or a wholesaler. Unfortunately, BOPs do not exist for every type of business, nor are they for every type of business.

What's the best solution for your company? The experts at Redding Insurance begin by asking the right questions about your business to determine the most comprehensive solution. Insurance decisions don't end there however. Developing a relationship with your agent is important as your business grows and changes. Making sure your coverage increases with the scale and exposures of your organization is very important. Looking for more information on insurance for your automobile? Lee County Insurance Services.