Insurance Tips for Small Business Owners

James A. Benson, CPCU, is the Executive Vice President and Managing Partner of Merit Insurance. 

In today's economic environment, every business, big or small, is trying to find ways to cut costs.  One area that businesses naturally look at is their property and casualty insurance program, because this represents a sizable expense for many businesses.  The trick, however, is to manage the expense of insurance, without jeopardizing coverages that are crucial to properly protecting a business.

There are five basic coverage areas that a small business must evaluate when managing their insurance program:

1.  Liability

Virtually every small business should carry third party liability insurance.  This coverage protects businesses against law suits resulting from bodily injury and/or property damage to a third party.  This includes claims that could simply result from a slip and fall on the business premises.  We recommend at least $500,000 in basic liability coverage, but most small businesses can, and many times should, increase that protection to $1M at a minimal cost.

2.  Property

Every business that has assets (building or content) should have a property policy for protection against losses to those assets (fire, theft, vandalism, etc.)  It is important to pick a limit that adequately insures the assets.  (Many policies will incur "coinsurance" penalties if the property is under-insured.  This penalty would apply even in a partial loss.)  However, it is equally important when managing costs not to over insure the property.  A carrier will never pay out more than the limit shown on the policy, nor will the carrier pay more than what the actual damages are.  So it does not make sense to pay a premium for a coverage you could never collect.

One coverage that is often overlooked is the business interruption/extra expense coverage.  This is an important coverage for businesses operation out of a specific location, which would suffer "loss of business income" if unable to work at that location.  This coverage would replace lost net income and pay continuing expenses, as well as "extra" expenses incurred to get the business up and running.  Once again, it is important to evaluate the limit on the policy to make sure the coverage is adequate.

3.  Auto

This coverage is important for businesses that own autos, but also for a business whose employees use their own cars while working for the business.  In this case, "non-owned and hired" auto coverage is appropriate.  This would protect the business in the event the employee is involved in an accident, and the business is brought in as a party to the law suit.

From a premium perspective, the town in which the vehicle is garaged (where the vehicle is principally garaged at night) is a significant factor when determining the premium of each vehicle.  The premium can vary significantly depending on which town it is garaged.  Also, if a business owner does not have a personal auto policy, "Drive other Car" coverage should be added to the business policy.  Finally, consider whether it is necessary to purchase collision coverage on older vehicles.  It might not be worth the premium to purchase collision coverage on an older vehicle.

4.  Workers Compensation

This is required in the state of Connecticut if a business has any employee payroll.  It is crucial to evaluate the classifications that apply, as the rates by class vary significantly.  Also, as the owner of a business, it is your choice whether you want to cover yourself.  Remember, Workers Compensation provides medical and lost income coverage, so it is an important coverage that should not be taken lightly.

5.  Umbrella

Many times, this coverage is misunderstood.  Umbrella policies are third party liability policies that add limits to the general liability and auto liability limits, in layers of $1M.  Umbrella policies do not cover any first party property losses or damage to owned vehicles.  Generally, the purpose of an umbrella is to protect a business against a "catastrophic" third party loss, where the third party injury or damage is severe.

Lastly, when evaluating a business insurance program, a business owner should seek the advice of an insurance professional -- someone they trust.  Being an "independent agency", we promote the fact that independent agents have several insurance carrier relationships, which enable us to match the business to the appropriate insurance company.

After all, at the end of the day, it's all about designing an insurance program that is right for the client -- in terms of both coverage and cost.

 

Comments

[commercial insurance quotes]

A very well-informed post. At the end of your post you wrote "seek advice..someone they trust" trust being the main keyword here. Since it is a long term business decision, you must be very careful when chosing insurance company.