Determining Your Business Insurance Needs

Ultimately, determining your business insurance needs rests with you as the owner.

Many of these businesses and their owners get big surprises and out of pocket expenses because they don’t understand their insurance coverage.  We often hear after an incident, “I thought it was covered by my business insurance.”

Sadly, it’s estimated that 75%-90% of all businesses are underinsured.

Any business needs some type of business insurance to protect it and the assets of the business against potential risk.  Many types of insurance and coverage are available to you to protect your business.  Some insurance is mandatory in many states such as vehicle insurance and workers compensation insurance.

Check with your licensed insurance professional or state department of insurance to determine what is mandatory in your location.  The additional insurance needed to protect your business will vary by industry and products and services provided.  An architect may need professional liability insurance and a convenience store may need product liability insurance.

What follows are types of insurance and coverage available to business.  Check the list and compare it to your present coverage.  Any gaps or red flags should be addressed immediately with your licensed insurance professional.  We’re assuming property, general liability insurance, and workers compensation are part of your present package.

  • Business Interruption Insurance: This covers losses and expenses due to fire or other incidents.  The policy covers salaries, rent, utilities, and even lost profits.
  • Directors and Officers Liability:  This protects the officers and board members from suits brought against the company and its officers.
  • Employment Practices Liability: This covers against lawsuits of sexual harassment and wrongful termination.
  • Website Insurance:  This covers a variety of claims relating to the company website.  It includes copyright infringement, and data breach.
  • Errors and Omissions: Also known as professional liability insurance.  This insurance protects against legal claims of malpractice or failure to perform to professional standard.
  • Product Liability Insurance: This protects both sellers and manufacturers against defects and injury as a result of product use or components.
  • Health Insurance:  Major medical insurance offered to employees.

Take the time to discuss what is, and more importantly, what is not covered under your present business insurance package with your agent.  In addition, the coverage noted above is just a starting point.   Don’t get surprised when it is too late.

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Liability Claims: When To File

When should I file a liability claim on my insurance?

A serious problem insurance carriers express is clients waiting far too long to submit a claim.  A liability claim, from the initial incident to ruling, are generally slow moving cases and can be time consuming.  Often, these complaints take weeks or more to develop and then span over months or more of back and forth negotiation and often then end up in court.

The first mistake made by business owners and managers is not reporting the incident, no matter how simple it may seem.  If you have managers and supervisors, they must understand how serious this can be.  Many will wait months before finally notifying their agent and insurance company.  Some business owners put blinders on and just hope the problems magically goes away.  Some will use their own attorneys in an attempt to have a quick end to the problem or believe they will save money.

Following any of those paths can lead to jeopardizing the coverage of a liability insurance policy that may be covered.  Written into every policy is wording to the effect the insured must immediately notify the insurance company of any situation which could result in a claim.  This rapid notification allows the insurance company to investigate the situation and if necessary, prepare a defense.

Failing to notify the insurance company, or trying to handle the claim though another attorney, the company may have the right to deny the claim even if it would have been covered.  The insurance company may also opt to settle the claim because of the inadequate notification and preparation time gone by.  Your licensed insurance professional can work with you and your team to understand and develop a claim process.

Your business should have a business attorney. However, liability claims should go through your insurance company.  They will lay out the process to follow the claim through litigation.  In fact, your attorney may be involved through your insurance and paid through the insurance carrier.

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Work with your licensed insurance professional and develop a workplace process in notification of potential liability claims with your employees to you and you to your insurance carrier.  Don’t make a costly mistake that could severely impact your business.

Business Interruption Insurance

What is business interruption insurance?

Business interruption insurance covers your actual business from the loss or damage to your income due to a loss at your business.  Let’s look at the following scenario to best describe how it works.

John Jones has a flower shop in a leased space downtown.  The income is generated through take out flowers from walk in traffic in addition to phone in orders at their business.  They are also connected through FTD for orders and delivery. They have several walk in coolers for storage and service, a storage area for paper goods, restrooms, and small retail area for their customers which also has two floor coolers.  The shop averages $800 a day and monthly is about $24,000 in revenue.  The shop nets about $1,800 a month not including a salary paid to John.

A fire in the building destroys the shop.  A claim is submitted to the property insurance.  However, to maintain the space, utilities need to be paid, equipment loans paid, minimum orders are required by several vendors to maintain the business.

A contractor is hired, and new coolers and equipment ordered.  Still, it will take six weeks or more to get up and running.  No revenue is being generated, which also means John has no income.  This is a tough scenario for any small business.

However, John’s commercial insurance professional added Business Interruption insurance to their coverage.  This insurance will cover the loss due to time, quantity and other values. John submits a claim based on actual business records of losing $36,000 in revenue and profits of $2,700.  Now, the shop has this covered as well as the property insurance claim, allowing them to get through to re-opening the business.

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Ask you licensed insurance professional if business interruption insurance is appropriate for your business.  Many businesses are forced to close for good by not preparing for the down time and revenue loss.

Review Your Business Insurance

Review your business insurance and meet at least annually with our agent or broker.

We recommend meeting with your licensed insurance professional at least annually and doing a complete review not only of your present coverage, but what’s changed and planned for your business.  That meeting should typically take place 30-60 days prior to the expiration of your business insurance policies.  As a trusted advisor to your business, it’s important to share all relevant information to best determine the insurance planning for your business.

Use the following as a checklist:

Location and inventory

Has the mailing address changed?  Any new locations opened or planned?  Has the spaced been modified, expanded, or upgraded?  New products? Are you inventorying more or less products or materials? Have you added a security system? Sprinkler system or upgraded or installed any fire or water monitoring?  Have you purchased new equipment or computer and phone system upgrades?  Have you purchased or are you planning to purchase any new vehicles or trailers?

Scope of business

Do you have a current profit and loss statement? Financial statement? Have you hired any new employees? Are you checking driving records? Operating costs up, down? Why? Revenue up or down? Why?  Has compensation and payroll increased? Any new management staff?  Any ownership changes?  Are you diversifying or considering adding services or products not presently available? Have you increased or decreased the range of your business? Have you considered data storage and technology liability?  Is their a need for professional liability insurance? Product liability insurance?

This is a starting point to a very productive annual review with your licensed insurance professional.  Use this format and ask them for additional information they would like to see and review.  Your insurance advisor wants to be part of your team and help you succeed.  Make it easy for them by helping them understand your business and your vision for your business.

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What Will My Business Insurance Deductible Be?

How should I figure what my business insurance deductible will be?

The deductible, the amount not covered or paid by your insurance policy must be seriously considered when purchasing business insurance.  Your insurance carrier will cover almost all of a covered loss, saving your business from a large, sometimes crippling cash outlay.

Say a covered claim is $20,000 and your deductible is $2,500, then the insurance company pays $17,500 and your business is required to pay the remaining $2,500.  No matter if the claim is $2,000 or $40,000, subject to coverage limits (the maximum a policy will pay) your deductible remains at $2,500.

So, in the case of the $2,000, it is paid 100% by the business because the deductible was not met.  It’s important to understand the impact of the deductible on the business cash flow.  Deductibles can usually be negotiated or have a tier system to choose from depending on the coverage.

The higher the deductible, the lower the premium cost and vice versa for the policy being issued.  As an example, with a $1,000 deductible, the premium is $1,850 a year, but with a $2,500 deductible, it drops to $1,060 a year.

Determine the risk and exposure for each policy type your business has in place or may need to add.  Depending on the risk, and the type of insurance, it may make sense to pay a lower premium and a higher deductible for your business.  While this would certainly be a good thing for cash flow, some risk may be high enough to justify the lower deductible and higher premium.  Look at the risk and make sure a claim wouldn’t jeopardize the financial solvency of the business. Work with your insurance professional to maximize coverage while making the premiums affordable.

Property insurance deductibles can also be figured by an individual claim basis or an aggregate basis. Typically, small companies with no or few claims will find the individual claim basis attractive.  However, if your company or industry has a large number of claims annually, it may be prudent to look at the aggregate basis.  (Remember to look at the type of coverage, replacement cost vs. cash value as well)

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Work with your licensed insurance professional in determining the best business insurance package and coverage for your business.  Together you should develop what deductible and premiums will work best to insure your risk.

Liability Insurance for Medical Professionals

Professional liability insurance or E & O insurance is probably best known for doctors, dentists and medical practitioners.  Most people recognize it as ‘malpractice’ insurance.

In this economy, even medical practitioners and office managers will often ask if they can reduce or eliminate their E & O insurance.  The answer is always a resounding ‘NO!’

Almost all states require health care providers to have liability insurance.  However, even in states that don’t, providers need to provide proof of coverage to see patients in a hospital or participate in many networks.  Very few physicians and providers choose to go ‘bare’ in this day and litigious climate.  The risk is just too high.  Medical malpractice suits generally have far greater legal costs, settlements, and awards.

In today’s world, any time, for any situation, a patient or family member can file a complaint.  No matter the finding, these cases can take years to litigate and court costs and attorney fees can be a staggering amount.  So can the awards of damages if the doctor is actually found to be negligent.  Professional liability insurance will relieve the financial pressure and strain from a malpractice lawsuit.

Professional liability insurance will cover costs and fees associated with defending the charges as well as awards subject to deductibles and limits.  More important, the physician and the practice can focus on patient care and caseload and not the legal issue at hand.

Owning and carrying professional liability insurance for the healthcare professional and practice doesn’t make it more or less likely to be sued, but it does allow you to be prepared should someone sue. In addition, should you contract out professional services charged by your practice, require your sub-contractors provide proof of insurance.

Get in touch with your licensed insurance professional and review your professional liability insurance policy.  Make sure to ask questions and understand the coverage and specifics of the policy in place.  Insure you review this coverage at least annually or if anything changes within your current practice.

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Insurance for a Self-Employed Consultant

Do I need business insurance as a self-employed consultant?

As a management or business consultant, your clients are looking to you for advice and your experience to help them make strategic decisions and policies based on that input from your firm. This type of practice can certainly expose your business to higher exposure to risk and potential liability.

Regardless of contract language designed to protect your business, your risk exposure is significant.

Any type of consulting business needs to look at Professional Liability Insurance first, sometimes know as Errors and Omissions Insurance, or E & O Insurance. This type of insurance covers the business against claims of negligence and errors while performing professional work.

This insurance will help consultants in a claim in which their client is unsatisfied with the performance or outcome of the recommendations implemented by the client. This will also protect against claims relating to the perceived value of the service provided or financial harm as a result of implementing the recommendations.

In addition, the management consulting business will need a general liability policy which addresses claims of bodily injury or property damage. This policy doesn’t protect against professional liability claims. The consulting business will also need to have property insurance policy to protect the physical assets of the consulting business from damages or loss.

In the event the consulting business hires employees, than workers compensation insurance will be needed as well. As the consulting firm grows, director’s and officer’s liability insurance, also know as D&O, should be a serious consideration of coverage in addition to the previous recommendations.

As many companies downsize or move overseas, a growing business segment has been management or business consultants. Many specialized employees of these companies have opted to stay in their location and set up a consulting firm. Often, several employees from one company are joining together to pool resources. Opening a management consulting business can be rewarding. Make sure to protect the business by sitting down with a licensed insurance professional to determine the risk and how best to protect the business from that exposure.

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Product Liability Insurance

What is product liability insurance?

In these days of increased consumer lawsuits, one type of liability coverage a business may want to consider is product liability insurance. Product liability insurance will protect a business from claims relating to both the sales and manufacture of a product. This includes foods, medicines and drugs, as well as other types good which may be used or consumed by the public.

Product liability insurance covers the liability for producing or selling the product from claims of loss or bodily injury to the buyer, user, or even a by stander which may have been caused by a defective product or a product malfunction. This coverage may also protect against a failure to warn.

It’s important for the business to understand the types of claims which may be made and how their business could be part of this type of claim. The first is a manufacturing or flaw in producing the product. This includes the chemical composition of the product including production of parts to manufacture the end product.

The second is a design defect in the product itself. This defect would make use of the product unsafe either immediately, or over time.

The recent Toyota brake case is one example of a design defect.

Suits against pharmaceutical companies are another example.

There also may be a defect in the actual instructions or labeling of the product. The MacDonald’s coffee suit is an example of this type of failure to warn.

In any product liability suit, the damages awarded include medical expenses, legal costs, compensatory damages, and more. These types of suits can and often do put a company of business. If your business manufactures, sells, or even transports good which may be consumed or used by the general public, take a hard look at this coverage.

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Your licensed insurance professional can help you determine if your business is at risk and whether product liability insurance would make sense for you.

What To Look For in a Commercial Insurance Agent

What should I look for in a commercial insurance agent or broker?

Value and service are words often bantered around in the commercial and personal insurance world. Well then, just what is value and service as it relates to the licensed insurance professional providing your business with insurance?

At this point, there is no magic wand to wave to produce the ideal agent or broker. An accountant’s business insurance needs will differ from a retail store’s insurance needs and a veterinary clinic’s insurance needs. Instead, let’s turn the focus on what you feel you need to achieve value from your insurance professional and what level of service should be expected.

Has your agent shown a level of expertise about your business as well as business in general? Have they reviewed several options to meet your insurance needs? Are they able to show familiarity with your industry and made recommendations specific to it?

Is your agent or broker genuinely interested in your business and not just the commission? Have they recently toured your facility and inspected the equipment they are providing coverage on? Is your business out growing your agent? Are you and your company relegated to a junior staffer expect at renewal time? At minimum, we suggest at least an annual review face to face.

An annual review is not “Here are the latest premiums; sign here.”

Instead, you should expect a review of your business, what’s changed, and what has changed with your licensed insurance professional.

Depending on the type of business you have, the risk your business carries, and how fast your business is growing or changing, we also recommend a quarterly update phone call. More or less contact needs to be determined by you as the client and not the insurance agent.

The bottom line is to set an expectation of what you want from your business insurance professional and then get mutual agreement when moving forward. Your business insurance professional should be one of your most trusted advisors and not just a transaction.

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If you feel like you’re just a number and a transaction, it’s time to look for another licensed insurance professional.

Understanding Property Insurance

Understanding property insurance for your business before filing a claim is important.

Many savvy business owners will often overlook or assume certain coverage is in place with their stand business property insurance. The truth unfortunately, is many types of disasters may not be covered by the insurance currently in place for the business. In general, your property insurance will cover your business from common risk. Things like vandalism, theft, or fire. Other disasters, like flood or high wind may not be covered at all.

It is very common for business owners to make the mistake of assuming the current insurance they have in place will cover for example, a flood. Only when it’s too late does the owner find out in fact, there is no ability to file a claim for the damages.

In today’s insurance marketplace, there are a number of packages and riders available to cover a multitude of risks. It’s important to research and maximize coverage and premium dollars without duplication of coverage. It’s important to work with your licensed insurance professional to help you determine the coverage you want. Make sure to ask a lot of questions regarding what you believe to be covered under your policy.

Meet with your agent or broker and determine what coverage and risk your particular business could face. You’ll need to compare policy coverage, premiums, risks, deductibles, and many factors in selecting your final property insurance coverage. Like many business people, after weighing the options, you’ll want to choose the most coverage you can afford.

Obviously, get the coverage(s) in place as most likely to least likely if affordability is an issue. Even with disaster insurance, look at the details of the policy and coverage options.

Don’t forget to ask your agent or broker about bundling all these coverage with one company for a further reduction in cost. Generally, multiple policies are afforded discounts whether personal or business insurance. Make sure to then review the coverage and the language of the policy.

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