Business Insurance

The success of a business, whether it's a tiny enterprise run out of a basement or a large corporation, is largely dependent on hard work and ingenuity. However, no matter how industrious you are, one disaster can wipe out all your profits and even destroy your business. The key to making sure that all the effort and money you have invested in a business doesn't disappear when a disaster strikes is to protect it with the appropriate insurance.

What does a businessowners policy cover?

	Insurance companies selling business insurance offer policies that combine protection from all major property and liability risks in one package. (They also sell coverages separately.) One package purchased by small and mid-sized businesses is the businessowners policy (BOP). Package policies are created for businesses that generally face the same kind and degree of risk. Larger companies might purchase a commercial package policy or customize their policies to meet the special risks they face. BOPs include: Property insurance for buildings and contents owned by the company -- there are two different forms, standard and special, which provides more comprehensive coverage. Business interruption insurance, which covers the loss of income resulting from a fire or other catastrophe that disrupts the operation of the business. It can also include the extra expense of operating out of a temporary location. Liability protection, which covers your company's legal responsibility for the harm it may cause to others. This harm is a result of things that you and your employees do or fail to do in your business operations that may cause bodily injury or property damage due to defective products, faulty installations and errors in services provided. BOPs do NOT cover professional liability, auto insurance, worker’s compensation or health and disability insurance. You'll need separate insurance policies to cover professional services, vehicles and your employees.

How can I insure my home-based business?

Let's face it. Launching and running a business takes capital, motivation and yes, even physical stamina to handle the stress and demands of a new or growing venture. And it's risky. In fact, one out of every five businesses fails within the first five years of opening. Handling inventory, scheduling time, purchasing supplies, handling payroll -- there are a myriad of procedures every home or small business entrepreneur needs to know, but one of the most critical and often neglected is buying proper insurance coverage.

	TAKING A BUSINESS INVENTORY What would happen if a fire or other disaster destroyed your property, making it impossible for you to get back to business right away? Would you remember what property had been destroyed? One way is by taking a complete inventory of all your personal business property, determining its value, and deciding what's worth insuring. Having an up-to-date business inventory will help you get your insurance claim settled faster, verify losses for your business' income tax return and help you purchase the correct amount of insurance. Start by making a list of personal business property, describing each item and noting where you bought it and its make and model. Clip to your list any sales receipts, purchase contracts, and appraisals you have.
	WHAT'S THE RIGHT COVERAGE FOR YOU? Then there's the question of what types of coverages you'll need. Aside from personal business property, there is liability insurance, business income, insurance for the building, boiler and machinery, human failure, employee protection and management protection, among others. The type of coverage you need depends on a number of factors including what kind of business you operate.

HOW TO KEEP COSTS DOWN

Start your search for a policy with trade associations or business groups. In many cases, these organizations are able to provide reduced insurance rates based on the volume of business they can offer the insurance company. They've also negotiated coverage specific to your type of business, which can save you significant time in determining what you should cover. Also make sure that you are working with an agent that understands your type of business.

Do I need business interruption insurance?

Business interruption insurance can be as vital to your survival as a business as fire insurance. Most people would never consider opening a business without buying insurance to cover damage due to fire and windstorms. But too many small businessowners fail to think about how they would manage if a fire or other disaster damaged their business premises so that they were temporarily unusable. Business interruption coverage is not sold separately. It is added to a property insurance policy or included in a package policy. A business that has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential. Business interruption insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire. Business interruption insurance covers the profits you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses, like electricity, that continue even though business activities have come to a temporary halt. Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster, it can take more time than many people anticipate to get the business back on track. There is generally a 48-hour waiting period before business interruption coverage kicks in. The price of the policy is related to the risk of a fire or other disaster damaging your premises. All other things being equal, the price would probably be higher for a restaurant than a real estate agency, for example, because of the greater risk of fire. Also, a real estate agency can more easily operate out of another location. Extra Expense Insurance Extra expense insurance reimburses your company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period. Usually, extra expenses will be paid if they help to decrease business interruption costs. In some instances, extra expense insurance alone may provide sufficient coverage, without the purchase of business interruption insurance.

Are there any disasters my property insurance won't cover?

	Yes. Floods, earthquakes and acts of terrorism are generally not covered.
	Protection against flood damage. Property insurance policies usually exclude coverage for flood damage. Find out from your local government office or your commercial bank whether your business is located in a flood zone. Also ask around to find out whether your location has been flooded in the past. Government projects to map flood zones may be slow to keep up with new developments. If you need to buy a flood insurance policy, contact your insurance agent or the National Flood Insurance Program. For more information about this program call 888-CALL-FLOOD or look at its web site http://www.fema.gov/nfip/. The federal government requires buildings in flood zones that don't conform to flood plain building codes to be torn down if damage exceeds 50 percent of the market value. Consider purchasing "ordinance or law" coverage to help pay for the extra costs of tearing down the structure and rebuilding it. If your policy contains a coinsurance clause, make sure your property is sufficiently insured to comply with the clause.

	Protection against earthquake damage. Coverage for earthquake damage is excluded in most property insurance policies, including homeowners and business owners package policies. If you live in an earthquake-prone area, you'll need a special earthquake insurance policy or commercial property earthquake endorsement. Earthquake policies have a different kind of deductible -- a percentage of coverage rather than a straight dollar amount. If the building is insured for $100,000, with a 5% deductible, for example, in the event of an earthquake, your business would be responsible for the first $5,000 in damage. Remember that business interruption insurance, which reimburses you for lost income during a shutdown, applies only to causes of damage covered under your business property insurance policy. If your business premises are shut down due to earthquake damage, you'll need to have earthquake coverage to make a claim under a business interruption policy.
	Protection against terrorist attack losses. Under the Terrorism Risk Insurance Act of 2002, only businesses that purchase optional terrorism coverage are covered for losses arising from terrorist acts. The exception is workers compensation, which covers injuries and deaths due to acts of terrorism.

How can I disaster-proof my business?

Businesses that recover quickly are those that plan in advance. This involves not only purchasing the right insurance, but also developing and maintaining an adequate recovery plan. Minimize the risk of damage in advance of an emergency by: Training employees in fire safety, particularly those responsible for storage areas, housekeeping, maintenance and operations where open flames or flammable substances are used. Modernizing the electrical system since faulty wiring causes a large percentage of nonresidential fires. Situating your business in a fire-resistant building - a structure made of non-combustible materials with firewalls that create barriers to the spread of fires - and in a building with a fire alarm system connected to the local fire department. It is also a good idea to have a sprinkler system to douse fires. Limiting storm-related damage by making sure the building conforms to damage-resistant building codes. Develop a disaster recovery plan by: Keeping up-to-date duplicate records of both computerized and written records. Under federal law, if companies fail to maintain and safeguard accurate business records, the company may still be held liable. Identifying the critical business activities and the resources needed to support them in order to maintain customer service while your business is closed for repairs. Planning for the worst possible scenario. Do research before a disaster strikes by finding alternative facilities, equipment and supplies, and locating qualified contractors to repair your facility. Setting up an emergency response plan and training employees how to execute it. Considering the resources you may need to activate during an emergency such as back-up sources of power and communications systems. Also, stockpiling the supplies you may need such as first-aid kits and flashlights. Compiling a list of important phone numbers (including cell phone numbers) and addresses, including local and state emergency management agencies, major clients, contractors, suppliers, realtors, financial institutions, insurance agents and claims representatives. The list should also include employees and company officials. Keep copies off the premises in case the disaster is widespread. Deciding on a communications strategy to prevent loss of your customers. Clients must know how to contact your company at its new location. Among the possibilities to explore, depending on the circumstances, are posting notices outside the original premises; contacting clients by phone, e-mail or regular mail; placing a notice or advertisement in local newspapers; and asking friends and acquaintances in the local business community to help disseminate the information. Review your plan on a regular basis and communicate changes to key employees.

How do I file a business insurance claim?

	When a fire, accident or theft occurs at your business: Contact your insurance agent and company right away. Any burglaries or theft should also be reported to the police immediately. Read your insurance policy so that you know what your responsibilities are to your insurance company after a loss. After a disaster, take steps to protect your property from further damage by making temporary repairs. If immediate repairs to equipment are necessary, save the damaged parts in case the claims adjuster is interested in examining them. Get at least two bids on the cost to repair or replace damaged property. When filing a business interruption claim, be able to show the income the business was generating both before and after the loss. Keep detailed records of business activity and the extra expenses of keeping your business operating in a temporary location during the interruption period. If you are forced to close down, include expenses that continue during the time that the business is closed, such as advertising and the cost of utilities. If you are unhappy with how your claim was handled: Talk to your insurance agent or claims manager to explain your point of view. Call the consumer affairs or complaint department of your insurance company and tell them your story and why you think you deserve a larger settlement. Contact your state's department of insurance about your problem. If you've tried all other options, consult an attorney who specializes in insurance matters to see if he thinks you have a valid claim that is worth a lawsuit. Provide the lawyer with all relevant documents and a copy of your insurance policy. Tell your attorney about any settlements offered by your insurance company and the attorney will judge whether you have a legitimate case that might result in a much larger settlement if brought to trial. Attorneys work on an hourly basis or on a contingency basis in which case they receive a portion of whatever settlement you ultimately receive. Get your lawyer’s fee structure in writing before you pursue your case, and make sure you are kept current on the status of the case as it progresses. You must agree to any settlement reached between your attorney and the insurance company before it is made final.

What's the difference between cancellation and nonrenewal?

There is a big difference between an insurance company canceling a policy and choosing not to renew it. Insurance companies cannot cancel a policy that has been in force for more than 60 days except when: You fail to pay the premium You have committed fraud or made serious misrepresentations on your application. Nonrenewal is a different matter. Either you or your insurance company can decide not to renew the policy when it expires. Depending on the state you live in, your insurance company must give you a certain number of days' notice and explain the reason for not renewing before it drops your policy. If you think the reason is unfair or want a further explanation, call the insurance company's consumer affairs division. If you don't get a satisfactory explanation, call your state insurance department. The company may have decided to drop that particular line of insurance or to write fewer policies where you live, so the nonrenewal decision may not be because of something you did. On the other hand, if you did do something that raised the insurance company's risk considerably, like committing fraud, the premium may rise or you may not have your policy renewed. If your insurance company did not renew your policy, you will not necessarily be charged a higher premium at another insurance company.

Do I need workers compensation insurance?

	Employers have a legal responsibility to their employees to make the workplace safe. However, accidents happen even when every reasonable safety measure has been taken. To protect employers from lawsuits resulting from workplace accidents and to provide medical care and compensation for lost income to employees hurt in workplace accidents, in almost every state, businesses are required to buy workers compensation insurance. Workers compensation insurance covers workers injured on the job, whether they're hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses. Workers compensation provides payments to injured workers, without regard to who was at fault in the accident, for time lost from work and for medical and rehabilitiation services. It also provides death benefits to surviving spouses and dependents. Each state has different laws governing the amount and duration of lost income benefits, the provision of medical and rehabilitation services and how the system is administered. For example, in most states there are regulations that cover whether the worker or employer can choose the doctor who treats the injuries and how disputes about benefits are resolved. Workers compensation insurance must be bought as a separate policy. Although in-home business and businessowners policies (BOPs) are sold as package policies, they don't include coverage for workers' injuries.

Can I insure the life of a key employee?

The loss of a key person can be a major blow to a small business if that person is the key contact for customers and suppliers and the management of the business. Loss of the key person may also make the running of the business less efficient and result in a loss of capital. Losses caused by the death of a key employee are insurable. Such policies will compensate the business against significant losses that result from that person's death or disability. The amount and cost of insurance needed for a particular business depends on the situation and the age, health and role of the key employee. Key employee life insurance pays a death benefit to the company when the key employee dies. The policy is normally owned by the company, which pays the premiums and is the beneficary. Contact an insurance agent or broker whose specializes in key employee insurance for more on how much it may cost for your company. To locate an insurance company that specializes in key employee life insurance, go to http://www.roughnotes.com/

Do I need professional liability insurance?

Professionals that operate their own businesses need professional liability insurance in addition to an in-home business or businessowners policy. This protects them against financial losses from lawsuits filed against them by their clients. Professionals are expected to have extensive technical knowledge or training in their particular area of expertise. They are also expected to perform the services for which they were hired, according to the standards of conduct in their profession. If they fail to use the degree of skill expected of them, they can be held responsible in a court of law for any harm they cause to another person or business. When liability is limited to acts of negligence, professional liability insurance may be called "errors and omissions" liability. Professional liability insurance is a specialty coverage. Professional liability coverage is not provided under homeowners endorsements, in-home business policies or businessowners policies (BOPs).

Do I need a commercial auto insurance policy?

As a businessowner, you need the same kinds of insurance coverages for the car you use in your business as you do for a car used for personal travel -- liability, collision and comprehensive, medical payments (known as personal injury protection in some states) and coverage for uninsured motorists. In fact, many business people use the same vehicle for both business and pleasure. If the vehicle is owned by the business, make sure the name of the business appears on the policy as the "principal insured" rather than your name. This will avoid possible confusion in the event that you need to file a claim or a claim is filed against you. Whether you need to buy a business auto insurance policy will depend on the kind of driving you do. A good insurance agent will ask you many details about how you use vehicles in your business, who will be driving them and whether employees, if you have them, are likely to be driving their own cars for your business. While the major coverages are the same, a business auto policy differs from a personal auto policy in many technical respects. Ask your insurance agent to explain all the differences and options. If you have a personal umbrella liability policy, there's generally an exclusion for business-related liability. Make sure you have sufficient auto liability coverage.

What is employment practices liability insurance (EPLI)?

EPLI covers businesses against claims by workers that their legal rights as employees of the company have been violated. The number of lawsuits filed by employees against their employers has been rising. While most suits are filed against large corporations, no company is immune to such lawsuits. Recognizing that smaller companies now need this kind of protection, some insurers provide this coverage as an endorsement to their Businessowners Policy (BOP). An endorsement changes the terms and conditions of the policy. Other companies offer EPLI as a stand-alone coverage. EPLI provides protection against many kinds of employee lawsuits, including claims of: Sexual harassment Discrimination Wrongful termination Breach of employment contract Negligent evaluation Failure to employ or promote Wrongful discipline Deprivation of career opportunity Wrongful infliction of emotional distress Mismanagement of employee benefit plans The cost of EPLI coverage depends on your type of business, the number of employees you have and various risk factors such as whether your company has been sued over employment practices in the past. The policies will reimburse your company against the costs of defending a lawsuit in court and for judgments and settlements. The policy covers legal costs, whether your company wins or loses the suit. Policies also typically do not pay for punitive damages or civil or criminal fines. Liabilities covered by other insurance policies such as workers compensation are excluded from EPLI policies. To prevent employee lawsuits, educate your managers and employees so that you minimize problems in the first place: Create effective hiring and screening programs to avoid discrimination in hiring. Post corporate policies throughout the workplace and place them in employee handbooks so policies are clear to everyone. Show employees what steps to take if they are the object of sexual harassment or discrimination by a supervisor. Make sure supervisors know where the company stands on what behaviors are not permissible. Document everything that occurs and the steps your company is taking to prevent and solve employee disputes.

What does kidnap and ransom insurance cover?

Depending on the type of policy, kidnap and ransom policies cover some of the expense of dealing with kidnappers and their demands. Kidnapping for ransom money is on the upswing. Kidnap and ransom insurance is now available as part of a comprehensive business insurance package, as a stand-alone policy for individuals and from a few insurance companies as part of their homeowners insurance policy. Corporate policies generally cover most kidnapping-related expenses including hostage negotiation fees, lost wages and the ransom amount. Policies for individuals help pay for the cost of dealing with a kidnapping but do not reimburse for ransom payments. To locate an insurance company that specializes in kidnap and ransom insurance, go to http://www.roughnotes.com/