Determining Business Insurance Needs
Insurance is a part of your business, so be involved in selecting the right coverage
REAP members often discuss with us their concerns and questions regarding business insurance coverage. Itís best to meet with knowledgeable insurance professionals so they can provide details of their insurance plans. The information provided below will help with your preparation.
Finding adequate coverage
What is adequate insurance coverage for your operation? In other words, what can you afford to write-off in the event of a loss (e.g. fire, theft, etc.) for which you have no, or limited, coverage?
Very simply, the insurance coverage you choose will be the difference between security against unforeseen losses (including lawsuit defense and judgment) and responsibility for such losses out of your own pocket.
If the risk of loss does not outweigh the cost of yearly premiums, then going without insurance may work for you. In most cases, a loss can be catastrophic or severely hurt a business, and the premium cost is worth the peace of mind against sudden and accidental losses.
Five principles of claims
So, if you decide itís wise to carry insurance, whatís next? Insurance is never really important until a loss occurs. All insurance claims turn on five principles, involving the person, property, peril, exclusions, and conditions:
- Is the person involved in the loss or accident an insured person under the policy?
- Is the property being claimed explicitly listed on the policy declarations?
- Is the peril (cause of loss) a covered loss under the policy?
- Is the event causing the loss or accident excluded under the policy?
- Does the loss or accident meet the conditions set forth in the policy?
- Is it limited in any way by the conditions set forth in the
Take an active role
To make sure these questions are answered in your favor, you need to take an active role in choosing your coverage.
First, take stock of what you want to protect from loss.
- Equipment (e.g. computers, fax machines, etc.)?
- Buildings, land, or fixtures?
- Business interruption?
- Only vehicles registered to the business?
- All vehicles owned by you?
- Any vehicle, even those owned by employees while being used in the business, or which your business temporarily uses?
Then decide how much each is worth, should a loss occur. Be realistic, donít under or over-estimate.
Second, decide what kind of coverage you need Ė what is it you would like to be protected from?
- Everything possible?
- Loss of income?
Third, determine who you would like covered.
- All employees?
- Only full-time?
Fourth, find a professional insurance agent to shop around for the best price for the package that fits your needs. Also, discuss exclusions and conditions on the policies the agent recommends.
Will any of these serve to restrict your operation? If so, seek another type of policy or determine if there are endorsements that can be added to the policy to counteract the exclusion or condition. An endorsement is an alteration to your policy which may decrease/increase, limit/or render void coverage.
Most of all Ė BE INVOLVED. This way you are covered as you desire, you avoid paying for unnecessary coverage, and you understand your coverage. You would not hand over the reins to your business to someone else, and insurance is a part of your business. Treat it accordingly.
Business insurance can be tailored to fit your needs. Your insurance agent will be able to discuss, and tailor, whatever coverage is appropriate for your business.
For more on this topic and a small business insurance basics fact sheet, see the Roundtable Topic Insert.