June 01, 2009

General Manager, Infantine Insurance; Topic: Protecting Your Business with Proper Insurance

 

Protecting Your Small Business with Proper Insurance Coverage

 

Having the proper Insurance coverage is essential to protecting your business and your investment.  Business insurance protects your investment by minimizing financial risk associated with unexpected events such as a fire or auto accident.

Determining what type of insurance and the amount of coverage you need is not easy.  It will depend on a number of factors including the type of business you are operating.  For example, manufacturing has different exposures and requires a different type of insurance than a retail store, and a professional operation such as a dentist office requires different coverage than a service operation, such as an auto garage.   Each type of operation has its own unique exposures and you will need to discuss them with a qualified insurance agent.

If you are planning to start a new business or have only been operating for a few years, you'll want to consider what type of insurance you should have.  Below is a summary of some of the different types of insurance coverage. You'll want to discuss each of these with your insurance agent to determine what is required for your business.

1.      Commercial Property Insurance - This covers everything related to the loss and damage of company property due to a wide variety of events such as fire, smoke, severe weather, vandalism, etc. 

        a. "Real Property" is coverage that provides protection for permanent structures listed on the policy.  Completed additions, permanently-installed fixtures, machinery and equipment, outdoor fixtures, owned personal property used to service, repair or maintain the building and additions under construction or repair are all included in this definition.  

       b. "Business Personal Property" is coverage that protects personal property owned by your firm and used in your operations. Furniture, fixtures, equipment, machinery, raw stock and finished goods all fall within this category.

2. Business Income & Extra Expense - This coverage is used to insure against loss of business income (including any continuing normal operating expenses) that you sustain due to the necessary suspension of your business operations.

3. General Liability Coverage - This coverage protects your business from claims arising from alleged bodily injury, personal injury or property damage liability. It includes protection for services you render or products you sell. Coverage payments can include judgments, attorney fees, court costs, or other related expenses.

4. Products and Completed Operations Coverage - This coverage is used to insure against claims arising out of bodily injury and property damage that result from products you have sold, manufactured, handled, distributed or disposed of; or for work you have performed, provided the accident occurs away from a premises you own or rent.

5. Automobile Coverage - This policy can provide a combination of liability protection and physical damage coverage for loss due to damage to vehicles owned, maintained, or used by you. Additional coverages such as medical payments and uninsured motorist protection can be purchased to customize the policy to fit your particular needs.

6. Workers Compensation - State law requires that every employer provide workers compensation insurance for their employees. This insurance provides coverage for accidents or disease arising from employment as prescribed by these state laws. Benefits can include lost wages, medical expenses, and permanent disfigurement/disability payments.

7. Professional - This coverage is used to insure against claims arising out of negligent acts, errors or omissions in the rendering or failure to render professional services as defined in the policy.

8. Umbrella - This policy provides protection against catastrophic liability claims. The policy acts as excess coverage over your primary liability policies. The limits apply in addition to that provided by the underlying coverage.

In order to make the most appropriate insurance recommendations for you your business, you should plan to provide the following information when talking to your Insurance Agent:

1. Your Business Plan - This information should include your background and years experience in the business that you are operating or thinking of starting. For example, if you are starting a new restaurant and your past experience has been as a carpenter, insurance companies are less likely to offer you coverage. But, if you have been a chef managing a kitchen or managing another restaurant, they will consider that experience when assessing your risk.

2. Property Coverage - you will need to provide information on the type of building you are going to occupy (even if you are just leasing space). The insurance company will need to know the following:

• a. Street location
• b. Construction of the building
• c. Building age and if it has had any updates to the electrical, plumbing, heating and roof (especially if it is an older building).
• d. Type of tenants that occupy the building (it makes a difference if another tenant is a fireworks factory or just another office).
• e. Property values - what is the replacement cost of your contents and equipment. If you are leasing the building, does the lease require you to carry the insurance on the building?
• f. Business Income - If you were to have a loss, for example a fire, how much business income will you need until you are able to get up and running again? How much extra expense would you need to rent another space or equipment so you can continue to operate your business?
• g. A list of any equipment or tools that you would use away from your premises.

3. Liability Coverage - Information you need to provide will depend on the type of business. Typical information would include:

• a. Square foot area of your premises.
• b. Estimated sales you plan to do in the following 12 months.
• c. Estimated payroll broken down by the different type of operation you do.
• d. If you manufacture a product, what is the product used for and how is quality controls set up?

4. Professional Liability - This coverage generally needs a specialized application depending on the type of business. Your agent will be able to provide you with the proper application.

5.      Business Auto

• a. A list of the vehicles that include the VIN# and cost new.
• b. Driver list for those that regularly drive your business autos. This list needs to include date of birth and driver license numbers.

6. Workers Compensation - This coverage is required by state law any time you hire an employee, even if that employee is part-time.

• a. Payroll breakdown between the types of jobs your employees will be doing. For example, for a manufacturing business, separate payroll between clerical, sales and manufacturing. For construction it would be by what they are doing - carpentry, electrical, plumbing, etc.

From this basic information, your insurance agent will have a good start on being able to provide you with the insurance coverages you need to protect your Investment.

I hope you've found this information helpful and I look forward to answering your questions on these or any other insurance topics.

Chuck is the General Manger for Infantine Insurance, Inc. in Bedford, NH which specializes in property and casualty insurance for construction, manufacturing, mercantile, retailing and service businesses of all types and sizes as well as personal lines products.Chuck has over 30 years in the insurance industry, starting his career as an underwriter for an insurance company and then as an Independent Insurance Agent. He holds both his Property Casualty Producer License and Surplus Lines License in the State of New Hampshire and also has his Producer License in the states of Massachusetts, Maine and Vermont. Chuck is a member of the Board of Directors for the Independent Insurance Agents Brokers of New Hampshire.

QUESTION: Could you provide me with some examples of "necessary suspension of business operations" when pertaining to Business Income and Extra Expense Coverage?

ANSWER: An example of a "necessary suspension of business operations" would be for damage to your property by a covered cause of loss - for example a fire that would cause you a loss of business income, since you would not be able to open your business until the damage is repaired.  Another example would be if you had a piece of equipment that was damaged by vandalism and you could not produce your product and that caused you a loss of business income.

 

QUESTION: Can you give examples of the types of businesses or specific industries that would need professional insurance?

ANSWER: If you are in a business of providing a service or advice to clients for a fee, you would need professional liability.  Each policy coverage is customized to their type of profession.  A dentist professional coverage is different than an engineer.  Examples of types of businesses that need professional liability would be Architects & Engineers, Medical and Healthy Care, Technology Services, Veterinarians, Counselors, Accounts, Lawyers - to only name a few.

 

QUESTION: I'm thinking of buying a condo for investment reasons. I understand that the Condo Association has a master insurance policy that covers the buildings with a $5,000 deductible payable by owners. Condo dues contribute to this coverage. Would I need any other insurance? I would be renting it as an unfurnished unit, but it would have appliances including a washer/dryer. Also, the condo complex has a swimming pool. Do I need to be concerned about that or would any liability there fall on the condo association only? I look forward to your response.

 

ANSWER: You will need to review the condominium declaration and by-laws to see the type of insurance coverage they are proving.  Some associations will provide coverage for finished interior walls, flooring and permanently installed fixtures like cabinets.  You will also see some associations that only provide coverage to the bare studs, in which case you need to provide coverage for the walls, floor covering and fixtures, etc.

Since most associations provide coverage under the first scenario, you should provide you own coverage for items not permanently installed and I would include the stove, refrigerator, washer and dryer.  You will also need to include coverage for any Improvements and Betterments for upgraded cabinets, carpeting and wall covering, that may not be included in the "standard" unit (the condo declaration and by-laws should explain this as well).

Other coverage that you should consider is loss of rental income and loss assessment.  Loss assessment will give you some protection for your portion of the association deductible that they may charge back to each unit owner.

The association liability policy should cover the swimming pool, however, you do need to make sure you have your own liability as well for your rental unit.

 

QUESTION: Thank you for an informative article. Can you talk about how a business owner operating as a sole proprietor would best protect his personal assets? Would an umbrella liability policy be a logical choice? Why or why not?

 

ANSWER: The best suggestion that I have to answer your question is to consult a lawyer.  I would certainly suggest umbrella liability coverage that would include your business operation.

 

QUESTION: For someone who is interested in opening a large indoor sports facility, is there one specific type of insurance that could cover all potential liabilities? Or would several different policies need to be taken out to cover the building and the well being of individuals?

ANSWER: There are a number of specialty insurance programs that are designed to cover the insurance needs of an indoor sports facility,  However, depending on the type of activities, like a climbing wall, it may be difficult to have all the coverage on policy.

The Insurance Company will look at a number of factors when underwriting the risk.  You should put together all the activities you plan on doing along with the safety measures, the experience of the staff running the programs and sample copy of waiver & release forms.

The Insurance Agent will have specialty applications that will ask all the questions the insurance Company will need to underwrite the risk.

 

QUESTION: Why does our insurance company need a "driver list"? Wouldn't any employee who

drives the company vehicle be covered whether they are on the list or not?

ANSWER: The Insurance Company reviews the motor vehicle record of those that will be driving Company vehicles to determine if they meet their guidelines.  Those drivers that have poor driving records increase the likelihood of having a loss.

If you have a driver that does not meet the guidelines, the Insurance Company may require that person not drive a Company vehicle.

The standard insurance policy does not exclude drivers, so the insured would be protected an employee not listed.