What Is a Business Owner’s Policy?

What’s a business owner’s policy and should I get one for my new business?

One certainty in a struggling economy is many people find themselves downsized, re-assigned, or facing a cutback in hours and benefits.  For some people, they begin to look at running their own business or becoming self-employed.  If this is a possibility for you, or you have already started a small business, it’s imperative to understand how important insurance is to your business.

As a new or start up business, it is possible a Business Owner’s Policy may be a good starting point to protect your business and its assets.  A Business Owner’s Policy may offer a way to protect what you have while not breaking the bank out of the blocks.  A Business Owner’s Policy will help reduce risk and insulate your family’s assets (Naturally, speak with an attorney) in the event a claim if ever brought against you, your employees or business.

Most people today who are starting a business do not have a large amount of assets such as vehicles and equipment, machinery and a large number of employees.  Without being a large business, your insurance needs should be fairly easy to determine.  This is where a Business Owner’s Policy can be a good decision.  A licensed insurance professional can review the coverage options available to your business.

As a rule of thumb, a Business Owner’s Policy normally covers all the basics for your new start up or existing small business.  This includes basic property and liability protection for your small business.  More often than not, your Business Owner’s Policy can be added to and coverage(s) extended as your business grows.

This is a great feature of a Business Owner’s Policy.  As you review your insurance options for your business with your agent, make sure to understand where losses can occur.  Another good resource is the state department of insurance.  Look for similar businesses and what type of claims they may have had and make sure those types are covered.

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Critical Business Insurance Blunder

As your business grows, don’t make this critical business insurance blunder.

Why did you buy business insurance to begin with?  Let’s hope it’s not just because the bank, a landlord, or some other entity requires you to have it.  It’s because you know you need to protect the assets and employees of your business as well as yourself.  In the event of an incident that is or may be claimed to be the fault of someone or something in the business, your business insurance coverage is there to protect you and the company.

You realize how necessary it is to protect the property and assets of the business in the event of a disaster such as a fire, but is the coverage enough today?

Today in this challenged economy, it is still possible for a business to grow and thrive.  One problem we often see in reviewing coverage for new clients is that the risk that was initially covered has been allowed to be exposed again, as well as other risks are now possible.

Typically, a start business puts coverage into place which is affordable, and offers coverage which will protect a start up business.  Often, what happens is that as the business grows the coverage in place remains stagnant.  That can open up or allow exposure to risk to grow as the business does.  Let’s look at a real life scenario to see how that can happen.

Let’s use a local café as an example.  Initially, when it opened, the owner put business liability coverage in place.  He also purchased property insurance for the business as well as having worker’s compensation to cover several part time employees.  Overall, they did a pretty good job of purchasing business insurance which offered a good value and an affordable premium.  Two years later, let’s look at the café in more detail.

Business has exceeded plan both years.  They started doing some local deliveries and the owner has his employees use his personal car.  He’s added a new walk-in cooler and expanded by taking over the space next to him as well as adding liquor service.  He’s had to hire 7 more people and 3 of his folks have gone to full time as he also expanded his hours of operation to Saturday and Sundays as well as offering dinner.  Business is so good he’s added a new computer system, website, and even taken a pay increase for himself.

The problem is he never discussed any of this with his licensed insurance professional.  He is unaware the huge risk of using his personal auto and letting employees operate it.  He hasn’t increased the liability coverage or liquor liability to cover his growing business.  He hasn’t increased the limits on his property insurance and looked at adding business interruption insurance and mechanical breakdown insurance.  He needs to look at certain types of disaster insurance as the business continues to grow and risk grows with it.

In other words, by not growing the coverage with the business growth, this business has assumed some huge risk.  Potentially enough to cause fatal financial harm to the business should an incident occur.  Don’t put your business in the potential peril.  Keep your business insurance agent apprised of changes and make sure to schedule annual reviews.

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How Much Insurance Do I Need?

How do I decide how much business insurance I need?

Insurance is to protect the assets of the business as well as the business owner and its employees.  Now matter what type of business you’re considering opening or are already in, you will need to purchase insurance coverage for protection.  Whether you have a retail business like a flower shop or a stationery store, a convenience store, you will have to protect yourself and your business.

If you have a service business like a consultant, an accounting office, web design, or an ad marketing agency, you will need insurance in place to cover the risk.  Any business will have exposure to risk and needs to have coverage in place in the event a claim is needed or brought against the business.

For a start up or small business consider a general liability policy which will cover up to 1 million dollars for a loss, with a maximum of 2 million in one given year.  That may sound like a lot until you do some research.  Find out the types and amounts of damages awarded in your industry. Your state department of insurance can be a good starting point.  If the average is 1 million dollars, and there are awards of 3, 4, 5 or more million dollars, that 1 million per loss isn’t a big number anymore.

Work with your licensed insurance professional to determine if higher policy limits or a commercial umbrella policy may be needed.  It’s important to remember if you or an employee of your business is determined to be at fault for injuring a third party, the award can include all medical costs including rehabilitation, loss of income, and also pain and suffering.  Talk frankly and ask your insurance professional tough questions regarding your liability coverage and possible outcomes.

Business property coverage limits should also set as high as allowed if possible.  Work with your agent to determine a total loss and the cost of replacing the entire structure and all equipment and furnishings while looking at starting over.  Just because you may lease space doesn’t mean you reduce limits.

It’s important to run the same scenarios and potential risks as they pertain to your commercial vehicle insurance.

Determine the best coverage options for your business by working with a licensed insurance professional. It’s important to look at each component of your business insurance separately, and then put the entire package together to reduce the risk exposure your business will face now and in the future.

Restaurant Insurance

What should I look for in restaurant insurance?

The restaurant and hospitality in general is a tough business to be in. Running and owning any business, but especially a restaurant comes with lots of headaches. Don’t let your commercial restaurant insurance be one of them. By putting the proper insurance coverage in place, you will eliminate a lot of stress and worry down the road as your business grows and evolves.

Commercial restaurant insurance covers restaurants, bars, doughnut and coffee shops, pubs, bistros, delicatessens, and more. A good commercial restaurant insurance policy should cover employees, buildings and equipment, loss of income, liquor liability and general liability.

A restaurant insurance policy needs to provide coverage for a variety of risks. The policy should cover employment practices liability, valet liability and liquor liability. There are a number of coverage options with varying limits and deductibles. Talk to your licensed insurance professional to review what is available. It is important to insure if alcohol is served that liquor liability is included. This insurance will protect the business if a customer gets intoxicated and causes damage or injury to themselves or others.

Equipment breakdown or mechanical breakdown insurance is imperative if you own a restaurant. This type of policy typically will cover property damages and also for a loss of business revenue (Business Interruption) due to the equipment failure. Walk in coolers, grills, ovens, and other expensive equipment breaking down can have a huge financial impact on the business.

Glass insurance may also be considered depending on the physical space and location. Glass insurance normally covers plate glass storefronts, and broken store windows which normally aren’t covered in a policy. In addition to these unique coverage options, your restaurant insurance should cover workers compensation, property, and general liability. The commercial restaurant insurance policy should also cover food-borne illness.

The restaurant business is a complex business. Your licensed insurance professional should have an understanding of the restaurant business. Your state department of insurance is also a good resource for information regarding restaurant insurance.

Make sure to discuss the unique aspects of your restaurant with your agent.

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Types of Business Insurance

Besides property and casualty insurance, are there any other types of business insurance?

We often discuss the basics of business insurance which includes general liability, property insurance and worker’s compensation insurance. Just like there are numerous types of businesses and industries, there are numerous types of insurance coverage available beyond the basics. As a business owner, you should consider whether your business may need to consider any other types of coverage which may not be included in your basic business insurance policies. Here is an alphabetical listing of some other types of coverage:

  • Business interruption insurance will provide income to cover costs if the business in closed or unable to operate for a period of time;
  • Crime insurance will protect against burglary, theft, and robbery from outside parties and employees.
  • Commercial umbrella policy will kick in if cover limits are exceeded for further protection of business assets;
  • Debris removal is generally not covered in business property insurance;
  • Directors and Officers Liability Insurance is for protecting the officers and directors from lawsuits;
  • Disaster insurance such as flood insurance generally isn’t covered in the property insurance policy;
  • Employment practices insurance deals with hiring and employment issues such as wrongful termination, sexual or other discrimination, privacy issue and more;
  • Equipment breakdown insurance will protect from losses suffered if machinery or equipment vital to the business breaks;
  • Glass insurance is for protection against broken store and plate glass windows repair and replacement;
  • Kidnap and Ransom insurance is designed to protect individual and companies working around the globe; and
  • Professional liability insurance should be considered if you recommend and advise or offer a service such as accounting or law.

In addition to the list above, there are many types of coverage options available. Check with your licensed insurance professional about options that may fit with your specific business and location. The department of insurance in your state can be a very good resource as well.

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Do I Need Insurance?

I lost my job and all the benefits and have picked up several contract projects, do I need insurance?

Many Americans have found themselves laid off or cut back in the last several years. In addition to a regular paycheck, the biggest loss is often medical insurance. This scaling back of the economy has allowed many people to freelance or do consulting. While this helps in replacing the paycheck, benefits and insurance are a different story. To answer the question above, the answer is yes.

First, any business whether home based or not needs to have a basic insurance package in place. A business owner’s policy may fit the situation by including property insurance, general liability, and usually some form of business interruption insurance all in one policy. This type of policy will be less than purchasing each type insurance separately with individual premiums for each.

The next critical piece is getting medical insurance in place. Getting a group insurance policy in place for your business may be expensive. During the initial start up, there may be other alternatives to look at when it comes to medical insurance.

First, was COBRA available? Consolidated Omnibus Budget Reconciliation Act (COBRA) health provisions passed in 1986 allows continued group health coverage that otherwise would be terminated. Health insurance is critical to managing risk. A devastating medical issue could bring financial ruin to anyone. If COBRA isn’t available, can you go on a spouse’s group health plan?

Struggling to make ends meets while doing contract and freelance work and trying to manage risk is a difficult but not impossible undertaking. Allowing your home and family’s assets to be at risk should be unacceptable to you. Many folks that utilize a home office and/or work out of their homes make the unfortunate assumption that their homeowner’s or renter’s policy will cover any losses.

Those policies don’t cover businesses. Personal auto policies generally do not cover your auto when being used primarily for business purposes. In addition, many policies have exclusion provisions for ‘illegal’ acts which could include ‘business being conducted in a residential area’ so it’s important to check your town’s specific ordinances and business permitting.

By taking on contract work, you have gone into business for yourself. Sit down with a licensed insurance professional and work together to manage the risk now facing you as a new small business.

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Working With the Right Commercial Insurance Agent

Are you working with the right commercial insurance agent?

Starting up and then running a business can be overwhelming. Often, there is no one to bounce ideas off or share problems with. Without a board of directors, it can seem like there is no one to turn to with questions.

Fortunately, you have a team of advisors in place; you just need to put them to work. In starting your business, you will need to use an attorney, an accountant, a banker, and an insurance professional to get everything in place. The key is to use this team as advisors to help you with answers to those questions that will arise.

What should a trusted advisor look like as it pertains to the licensed insurance professional that will work as part of your team? It’s is important to look at your insurance agent as a professional with level of importance as your attorney and accountant. Your agent will be working with you in determining the amount of risk and exposure your business will face and the best way to reduce it. Your licensed insurance professional, your agent or broker, needs to work with you and bring to the table a level of expertise in insuring your business and its employees.

When interviewing your insurance advisor, ask them for input. Are they willing to meet with you on a regular basis, talk on the phone periodically? Get references and check them. In the past, we’ve talked about annual reviews, but find out if they are willing and able to put more into the success of your business. Are they willing and do they have the expertise to become an advisor for your business? Are they willing to tour your business? Are they willing to help hold you accountable to your plan?

As the owner need to keep your insurance professional up to date on things like new equipment purchases and upgrades, new employees, new locations and expansion planning, new product offerings, and other changes to your business. This information is critical to them performing their role as an advisor.

It’s also up to you to insure the other team members accept and understand your insurance advisor is part of the team. Annual meetings are a good way to accomplish this along with quarterly conference calls. It’s your team; it’s up to you to make the most of them for your success.

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Business Interruption Insurance

What is business interruption insurance?

Business interruption insurance covers the loss of revenue that a business experiences as a result of a disaster while it is closed and being rebuilt or relocated. Property insurance covers the loss of the physical damage subject to deductibles and coverage limits. Business interruption insurance is designed to put the business into a similar financial position as being open and operating.

The amount of coverage for revenue is determined by a historical recap of your business’s financial records. The fixed costs are covered even though your business is not operable and are easily determined by the historical records. Costs incurred with moving or setting a temporary operating location can be covered. Extra expense coverage may be included in the coverage. For instance, if renting equipment would allow your business to operate during renovations or rebuilding, that rental can be covered.

Let’s look at a simple example to review how business interruption insurance would work. Say a fire destroys a small retail shop in a leased space in a downtown location.

A claim is submitted to the property insurance carrier. However, to maintain the space, utilities need to be paid, equipment loans paid, and minimum orders are required by several vendors to maintain the business. A contractor is hired, and equipment ordered. Still, it will take 6 weeks or more to get up and running. No revenue is being generated, which also means the owners have no income.

This is a tough scenario for any small business. However, Business Interruption insurance is in force. This insurance will cover the loss due to time, quantity and other values. The owner submits a claim based on actual business records of losing in revenue and profits. Now, the shop has this covered as well as the property insurance claim, allowing the business to get through to re-opening the business.

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Business interruption insurance is often the most valuable coverage in a business insurance package. Unfortunately, it is also the coverage most often overlooked when purchasing business insurance. Ask your insurance professional about business interruption and how it would work in your specific situation.

Do I Need Worker’s Compensation Insurance?

Do I need worker’s compensation insurance?

In order 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 purchase 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 for the employee. Every state except Texas requires you to carry worker’s compensation insurance.

Even though it is not required in Texas, it is possible that your customers or vendors will require your business carry it as a requirement to do business with them. Although many government entities do require worker’s compensation insurance.

An employer must carry worker’s compensation insurance, also known as worker’s comp for two reasons. The first is to insure workers that are hurt while working will be taken of financially. Worker’s compensation insurance will pay the medical costs and a portion of their wages while recovering from the injury.

The second reason is to protect the employer (the business) from being sued by the injured employee. It is important to have a good understanding of worker’s compensation in your state as requirements and coverage differs in every state. We cannot stress enough how requirements differ from state to state and it is the business owners responsibility to insure compliance.

As a rule of thumb, there is a waiting period in each state. This is to reduce frivolous claims. The waiting period again varies by state. Worker’s compensation insurance and the laws governing it are utilize a no fault concept. It doesn’t matter who is at fault, the employer or employee. However, there are some instances where fault could come into play, such as being under the influence of illegal drugs or alcohol.

It’s necessary to be pointed out; if you work as an independent contractor you also need carry worker’s compensation insurance for your protection. Check with licensed insurance professional and your state department of insurance to determine what is needed for worker’s compensation insurance in your business.

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Specialty Insurance for Business

Specialty insurance for business, does my business need it?

We often cover the ‘basics’ of business insurance in our articles. As a rule of thumb, most businesses need general liability, property insurance, commercial vehicle, and if the business has employees, worker’s compensation insurance.

However, some businesses have specialized insurance needs which may be covered, or quite, excluded from the insurance you have in place. Sometimes, certain laws or regulations require the need the additional specialized insurance coverage for your business. While your licensed insurance professional should recognize this, the bottom line always falls back to the business owner to insure the risk exposure is covered.

Here are some types of specialty insurance:

International Operations – Most insurance policies for business only cover claims in the United States. In addition to an international liability policy, you may have to get insurance coverage in each country where you are doing business. In fact, most countries require insurance be purchased from a company located in that country.

Maritime Operations – If your company owns or operates vessels that dock or off load in U.S. Ports, you need to have Maritime Operations insurance. This type of coverage will cover claims under the Jones Act and the Longshoremen’s Act.

Kidnap and Ransom Insurance – If you or your employees and their families travel work overseas, this coverage will aid and reimburse the business in the event of a kidnapping.

Valuable Papers Insurance – Certain businesses handle and produce critical documents. While some basic policies may offer some coverage, discuss options and additional coverage with your agent.

These are a few types of specialty insurance available for business. Check with your licensed insurance professional as well as the state department of insurance to research coverage needed and options that are available.