Contract Work and Business Insurance

The Question: I can’t find full time work and have found some contract work, do I need business insurance?

The correct answer to this question is a resounding yes.

A large number Americans have found themselves laid off or cut back to part time 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 pushed many of these people to freelance work or consulting.  While this helps in replacing the paycheck, benefits and insurance are a different story.   In addition, they are now facing additional risk to the assets they currently have.

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 of insurance coverage separately with individual premiums for each.  In addition, it is imperative if you are doing freelance or consulting work to get professional errors and omissions, or E & O insurance.

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.

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? The Affordable Care Act now offers various plans/exchanges in every state.

By taking on contract work, you have gone into business for yourself, like it or not.  Sit down with a commercial insurance broker and work together to manage the risk now facing you as a new small business.  Other resources are your state department of insurance and your present property and casualty agent.

Retailers: Consider Product Liability Insurance.

Product Liability Insurance protects a retail business against claims made from the sale of goods, products, medicines or foods sold to the public.  It covers the retail seller’s liability for losses or injuries suffered as a result of purchasing a product by a buyer, user or bystander.  It covers defective products or product malfunction.  In some cases, it may also protect the seller from failure to warn.  Sometimes, this coverage is found within a general liability policy for a business as products completed operations insurance.  Ask your commercial insurance agent about these scenarios and what risk exposure your business faces.

A recent example of how product liability insurance works is tainted pet food manufactured in China.  The pet food was then imported into Canada and then distributed to two U.S. locations which supplied the tainted pet food to Wal-Mart which sold it to customers.

A number of pets died, and Aa barrage of law suits began.  The Chinese and Canadians were insulated from suits, and even if judgments were levied, claiming restitution was impossible.

The retail outlet, in this case, Wal-Mart, ended up facing the numerous suits filed by unhappy cat owners.  Here is just one example of how product liability insurance can easily save a business from financial disaster.  Imagine if you’re your business was facing not just one, but multiple lawsuits.

Often, resellers and retailers fail to secure this coverage. The logic is that, since they did not manufacture anything, the coverage is not necessary. However, manufacturers are not the only ones subject to product liability exposure, retailers and wholesalers are often brought into a lawsuit for alleged negligence by the consumer. Many states follow the “stream of commerce” model of liability. This means that if your company participated in placing the product into the “stream of commerce,” it can be held liable for damages to the end user.

If your business provides any products to the public for use or consumption, then your company needs product liability or completed-operations coverage. In most cases, some form of this coverage will be present in the standard commercial general liability or business owners’ policy.

Check to confirm this with your commercial insurance agent. You will want to have a clear understanding of what is covered and what is not. (For example, some policies will cover economic damages, but not punitive or statutory damages) Product liability insurance is a necessity for any size business which is distributing or selling products in the United States.

One lawsuit to a small mom and pop store can result in devastation for the business.  Examine your general liability policy and determine if more coverage is needed to protect your retail store.

Assessing Your Risks

Your business is up and running. Your business equipment is just what you need. Your grand opening celebration is just around the corner.

But you feel like there’s something you’re forgetting. And there just might be! Have you looked into commercial insurance?

Commercial insurance is not a frill. It’s something that you are going to absolutely need.

Here are the steps you will need to take in order to ensure you get the coverage you and your business need but don’t overpay.

The first thing you will need to do is assess your risks. Insurance underwriters will look at your individual business as well as the industry in general and come up determine the level of risk involved with your business.

Next, they will decide whether or not they will cover your commercial enterprise, and if they will, what amount of premiums are required in order for them to do so.

Each policy has two parts to it.

The first part is the premium, which is Insurance-ese for the amount of money you will provide to the insurance company. Premiums are determined by complicated calculations which are designed to figure risk factors such as where your business is located, proximity to fire and police protection services, the type of building your business is in, and what kind of insurance you are buying.

The second part is the deductible, which is the amount of money you will be required to pay in the event that you make a claim. For example, if you choose a $1,000 deductible, and a claim is made for $5,000, your business pays $1,000 and the insurance company will pay $4,000.

Usually, the higher the deductible you opt to pay, the lower your premium will be.

When deciding whether to choose a high or a low deductible, you first need to look at whether you can afford the deductible. Given that the purpose of insurance is to return you to where you were before the incident which triggers the claim, you will need to choose a balance between what your business can afford without endangering its existence against what your business can afford to pay monthly.

As always, you will do well to discuss your position and choices with a qualified insurance professional.

A Must for Some Businesses: Professional Liability Insurance

Professional liability insurance is often referred to as errors and omissions or “E & O Insurance” or malpractice insurance. While a general liability policy covers against property damage or bodily injury to a third party, professional liability insurance covers you if a client or customer claims your services resulted in a financial loss.

Many professional service businesses choose to add professional liability insurance as part of the overall business insurance package. Accountants, attorneys, consultants, architects to name a few should carry Professional E&O. Typically these policies have coverage limits that are issued in million dollar increments and the deductibles range from $1000 – $25000 per claim. A million dollar limit may sound like a lot, but these claims often start even higher. You should be aware that these policies are normally sold on a claim made basis, and the policy must be in force.

Furthermore, if you cancel a policy it is imperative to have requested and received an extended reporting period. Otherwise, if you cancelled the policy and later a claim was filed against your company, even though coverage was in place at the time of the event, the event is not covered. With your professional liability policy it is important to understand all the terms and definitions. If need be, have the policy reviewed by an attorney who specializes in business law.

Professional liability insurance is normally sold by a specific industry or industry segment. A realtor’s policy will be different than an accountant’s that will be different from a medical professional, etcetera. It is important to review what the standards are in your particular service field.

Know what the exclusions that is in the policy and insure you choose the right policy to cover the most risk exposure. Your commercial insurance broker should walk you through the coverage and seek quotes from various carriers to maximize value and protection. In this day and age, you need to be vigilant from a disgruntled client making a false accusation as well as bona fide claims of damages.

Should I File a Claim To the Insurance Company?

One problem we see throughout the insurance industry is clients waiting too long to file a claim with their agent and their insurance company, especially liability claims. Liability claims are slow moving, take time, and typically run from the initial complaint or claim and end up in court.

This time frame will usually span several months or longer. Waiting to file can further delay and be very frustrating to all involved. Facts and memory gets blurred causing more questions and delays. All too often, business owners wait until several months have passed, or even longer before notifying their insurance company. Even worse, some owners try to block it out and hope it will just go away on its own or retain their own counsel to investigate and try to initially offer advice or a quick remedy when it’s a liability or potential liability claim of damage.

Waiting or trying to resolve a potential claim can jeopardize coverage for a liability claim, even if that scenario is actually covered under the liability policy of the business. A business liability policy typically states a policyholder needs to notify the insurance company if a situation has occurred that could result in a claim. Notifying your insurance company immediately, they have time to both investigate and prepare a defense if necessary. By waiting too long, the company may deny the claim due to a lack of proper notice or agree to settle due to a lack of time to prepare a defense.

Don’t delay filing a property damage claim with your insurance company either. Many claims seem to get delayed by a lack of understanding coverage or deductibles. If you have a property loss, review it with your commercial broker. Delays here can result in denials if not properly handled.

Your business should always have an attorney it works with. When it comes to a liability claim, your policy and the insurance company will spell out the litigation process and course of defense. It is possible to have your insurance company compensate your attorney, but you must start the process early on and not later. Make sure to review your present liability coverage with your commercial insurance broker.