Here are the answers to a few of our most frequently asked questions.
- 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/broker 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. 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 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?
Yes. Many small businesses are now insured under package policies that cover their 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/broker 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. We can provide you with information so you can choose the right policy (or policies) to protect you and your business.
- What types of property might 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 many of 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 (goodwill, trademarks, etc.)
- Leased equipment
To establish the amount of insurance you need on each, your agent/broker 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. Some, such as money and securities, may not be covered by a standard commercial policy and may require a 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 all of its value and decide if each item 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.
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 distributor in October)? Or does it fluctuate throughout the year? Is your liability limit high enough in light of the new job contract you just signed? Business policies are designed to be tailored to meet your needs.
Some common additional coverage for business property includes (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
This 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
This 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 Coverage
This 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.
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
This 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 insurance do I need to buy?
There is no one answer to this because each business is different. You should consult with your agent/broker on the limits needed to cover your potential for loss. Obviously, a one-person accounting firm will need to purchase less insurance than a firm with a substantial assets, clients, and employees. 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 in a flood-prone area, the owner should invest in flood insurance.
Liability protection will certainly vary from business to business. 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/broker can help you decide how much coverage is needed for your particular business.
- 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-upon amount. The differences among the three are:
Actual Cash Value
The replacement cost of the item minus depreciation. For example, a new desk may cost $500. If your seven-year-old desk gets damaged in a fire, it might have depreciated 50 percent. Therefore, insurance would pay you $250.
This coverage pays 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 seven-year-old one damaged by fire would determine the amount of compensation. If it costs $500 today, that would be the replacement coverage.
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 a 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.
- 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 and professional liability insurance protect your business assets when the business is sued for something it 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.
Generally, commercial liability insurance 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 us for help finding liability protection covering the situations that may arise in your business.
- What about the cars and truck that I own for 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.
- Will I need to protect my employees in the event that they are injured on the job?
Yes. All states have 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 a 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 businesses with one or two, and their policies will reflect these differences.
- I just signed a seven-year lease to open my business. Why does my insurance agent/broker want to see my lease?
Whether the business lease is for a building or for equipment, your agent/broker 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 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 fuel and chemicals on my premises. Do I have to have special insurance?
Yes, if your business transports, stores or uses toxic materials, you are generally required by law to have a special environmental liability policy.
- I work out of my home. Will my homeowner’s insurance cover my business?
Yes, but on a very limited basis. Loss of business property is usually reimbursed up to $2,500 for property 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 homeowner’s policy. We can help you ascertain what, if any, additional coverage you need. This additional coverage may be added to your homeowner’s policy or found in a separate commercial policy.
- What is coinsurance?
Most business policies include a “coinsurance” clause stipulating what percentage of the total value of your property must be insured for you 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 percent 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.
You should check with us for help maintaining the amount of coverage you want. Adding an endorsement to the policy that automatically increases policy limits to keep pace with inflation is a good idea.
- What do I need to know about Employee Benefits?
Employee benefits generally include health and group disability insurance (sometimes including dental and vision benefits), life insurance, and possibly a retirement program.
Employers can provide coverage for their employees alone or for the employees and their families.
Depending on the size of the group to be insured, the business may serve as the policyholder for the group’s insurance.
- 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 and policy forms, 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, agents, and brokers based on their ability to meet the states requirements for conduct and knowledge about insurance issues.
In addition, agents and brokers rely on the independent opinions of internationally recognized rating organizations to monitor and report on the size, financial strength and creditworthiness of most regional, national, and international insurance, and reinsurance companies.