02/ 25/ 2005
by Jeffrey Moses
Review your insurance package to make sure you have the coverage you need
Your business constantly changes. Therefore, your insurance coverage should not be thought of as a static, unchanging package. Rather, you should review your coverage regularly to make sure you're adequately covered for all developments in your business and to see if there are ways to decrease insurance costs. Now that the new year is well underway, this is an excellent time to review your insurance coverage.
The basic business owner’s policy contains coverage that is adequate for many small businesses, including coverage for liability and business property and equipment. Coverage amounts in your BOP that were adequate last year may be outdated and should be examined. A BOP does not contain coverage for all the risks you’ll face with your small business. You may need additional coverage, depending on your company's growth, size and type of industry and on the amount of risk you want assume or cover.
Before meeting with your insurance agent or business adviser to review current insurance needs, review the following general categories of risk in terms of business changes during the past year, such as increased revenue, added and expanded facilities or property, added employees, increased inventory, and added equipment or vehicles.
1. Property and equipment. If you have added property, inventory or equipment during the year, or if replacement costs have risen significantly, determine the amount of coverage you'll need to cover yourself in case of loss. When considering computers and other equipment, remember to check on replacement costs because they may have come down, giving you a chance to scale back coverage and save money.
2. Automobile and other vehicles. If you've added company vehicles, clearly you'll need to make sure they're covered. If some of your vehicles are getting older and becoming less valuable, you may want to consider eliminating collision and comprehensive coverage on these to reduce costs.
3. General liability. The more your company is worth in terms of revenue and net assets, the more you have at risk should someone sue you. Many times, however, lawsuits are for amounts even greater than the net assets of a company, so your coverage should be enough to protect your company in extreme situations. The amount you'll pay for coverage depends on the size of your facilities and your type of business.
The following risks are normally not covered in a general BOP, but should be reviewed annually. Clearly costs vary with amount and types of coverage in each category.
- Workers' compensation. Make sure that your insurance agent or business adviser is experienced in all details of workers' compensation.
- Health insurance (for yourself, your family and your employees).
- Disability insurance for yourself, members of your family that work for you and key employees.
- Life insurance for yourself and key individuals of your company (often called "key-man insurance"). You may not think you need life insurance now, but as the company owner you, along with key employees, may need to be insured to take out business loans. Life insurance packages should have your company as beneficiary, meaning that in the case of the insured’s death, your company would have extra cash to carry on while finding a new employee with adequate experience.
- Business interruption insurance beyond amounts covered in your BOP.
- Errors and omissions coverage. Many small-business owners who perform services or consulting work, even sole proprietors, should consider this coverage.
- Umbrella coverage that extends your total coverage above established limits.
- Directors and officers liability. This financially protects you and other top people in the company for lawsuits against the company.
