08/ 26/ 2004
by Charles McConnell
Do you carry enough insurance of the proper kinds on your business? Unfortunately, this is a question that doesn't occur to some proprietors until the unanticipated happens and they discover the coverage they depended on to set things right was simply not enough.
As one proprietor bemoaned after a major fire originating in an adjoining building completely destroyed his business and two others, "You never think it's going to be so drastic that virtually every stick and brick is lost."
The decision to buy or upgrade insurance coverage is usually not a pressing issue compared with all that can be occupying the time and attention of a small-business owner. But without insurance, or with insufficient insurance or the wrong kinds of coverage, a business stands at the mercy of fire, flood, tornado or other natural disasters. Not to mention the possibility of robbery or burglary or one of today's steadily increasing risks -- lawsuits. There are numerous ways a business can be irreparably crippled or wiped out if there aren’t enough of the right kinds of insurance coverage.
If you have an existing business, you should periodically review your insurance coverage. If you're launching a new business, initial planning for the venture should include an all-inclusive list of the business's likely insurance needs.
What coverage is needed? Consider first the basics. Primary coverages include: general liability; fire and, depending on where the business is located, coverage for floods or other natural disasters; business interruption coverage; and, if the business uses vehicles, the appropriate vehicle insurance. Also, a necessity that cannot be avoided because it's a legal requirement is workers' compensation coverage.
Some states don't require worker's compensation for businesses that have just one or two employees, but it's best to figure on it in most instances. And it's advisable to get some sound, knowledgeable advice before proceeding; workers' compensation premiums are based on a percentage of payroll cost by work category. That is, the greater the risk associated with a particular kind of work, the greater the percentage charged. For example, in a lumber operation the risks of injury to loggers and sawmill personnel are appreciably greater than the risks faced by office workers, so the premium costs are higher for the loggers and sawmill workers.
Beyond the basics, secondary and sometimes optional insurance includes:
- Coverage for robbery, often fairly high-cost but necessary to a business in which significant amounts of cash and valuables are handled
- Burglary coverage, which also may be fairly high cost, depending on the area, and necessitate meeting costly security requirements
- Fidelity bonding, for employees responsible for handling company funds
- Life insurance or key-person insurance, which can be especially important in partnerships and corporations
You can benefit from the services of an insurance adviser to help build the needed coverage around the kind of business you operate or intend to start. This adviser should be someone who specializes in business insurance and can help you stay up to date as the business grows and the environment changes.
Some people who run businesses from their homes have assumed that their homeowner's insurance is sufficient. This is not so; homeowner's insurance isn't likely to cover work-related accidents. Separate or additional coverage is required. Also if the family automobile is used for business, separate insurance is also needed.
For the home-based business, it's usually possible to add an endorsement to a homeowner's policy to cover business equipment up to about $10,000 or so in value, but this does not include liability coverage. It is sometimes possible to obtain an endorsement to a homeowner's policy for liability, but only if the business has very few visitors. Separate in-home business policies including most essential features are available, but these policies invariably limit the number of employees in the home to a maximum of two or three. The fact remains that the most comprehensive business-owner policies available are for businesses operated in locations other than the home.
Where to begin in determining how much of what kinds of insurance coverage are needed? An insurance adviser is a good place to start, as is the Small Business Administration. It's all too easy to become over-insured in some areas and under-insured in others and not be aware of such shortcomings until it's time to submit a claim.
