Small Business Edition - Insurance Fundamentals

The Types of Insurance a Small Business Needs...

If you are just getting a business off the ground, have bought equipment and started hiring employees, insurance should be top of mind.

There are four types of insurance that most small businesses purchase to protect themselves, and without them one accident or oversight could leave you with liabilities you may not be able to cover. When a company is growing from a sole proprietorship to one with employees, the insurance needs grow quickly.

Here's a look at the types of insurance most small businesses carry as they start growing.

Property insurance

This type of coverage provides compensation if business property is damaged, stolen or lost.

In addition to covering the physical business structure, property insurance covers personal property, including:

• Inventory,
• Office furnishings,
• Raw materials,
• Computers,
• Machinery, and
• Other items that are part of business operations.

Property insurance coverage doesn't end with protecting physical assets. It also provides business interruption funds when owners must take steps to get their business back on track following a major loss and if their operations have been impaired.

Property insurance may provide coverage for broken equipment in some cases if caused by a covered peril, but not if a machine breaks down. It may also provide coverage for water damage, debris removal following a fire and several other specific items.

Workers' compensation

Any company with employees is required to purchase workers' compensation insurance in most states.

Workers' compensation pays for a portion of lost wages for workers who are injured. In addition to this, it covers the medical care they require. Coverage is provided to employees who are injured at work regardless of who is at fault.

If a worker dies as a result of the injuries they sustain, the insurance company compensates the surviving family members of the deceased.

?Commercial auto insurance

This is only necessary if you have vehicles that you use in the course of business, or if you and/or your staff drive their own cars on company business.

Most personal vehicle insurance policies don't provide coverage if the automobile that is involved in an accident is used mostly for business purposes.

Business auto insurance policies cover vehicles that are owned and used by a business. Third parties injured by the policyholder's vehicle receive compensation for damages up to the policy limit amount.

Some policies may provide compensation for repair or replacement of vehicles that are damaged from flooding, theft, accidents and similar events.

?Liability insurance

Any business may face a lawsuit at some point during its existence. Liability insurance can cushion the blow by covering legal costs, settlements or judgments.

For example, a person may claim that a business caused them harm from a service error, defective product or negligence in providing a safe environment. Liability coverage provides compensation for damages a company is deemed liable for.

However, the coverage is only provided up to the policy's limit amounts. These policies usually also provide funds for legal defense expenses, attorneys' fees, medical bills and several other related expenses.

?The takeaway

In addition to the four major types of coverage purchased, there are several other valuable policies some companies may want to buy depending on their business. Umbrella policies and specialized liability policies are among the more common types.

Umbrella policies are often used as a second layer of insurance should you exhaust the limits of an underlying liability policy. These are usually obtained to prevent high losses by businesses with high risks.

Specialized liability policies are made up of several types of individual coverage, such as errors and omissions coverage for companies that provide professional services like architects or programmers.

How to Get Your Business Insurance Claim Paid

For the most part, when a business needs to file an insurance claim, the carrier accepts the claim and sends out an adjuster to assess the damage, after which it starts paying the claim.

But the process sometimes doesn't go smoothly, particularly if the insurance policy includes any number of exclusions. And many companies make mistakes in the claims process that may violate their policy's conditions.

It doesn't have to be that way, though. Fortunately, there are steps you can take to ensure your claim is paid, as follows:

?Contact your insurer immediately

When an accident or loss occurs that's potentially covered by your policy, you should contact your insurer right away. The earlier the better as it's easier for a carrier to assess any damage shortly after an incident.

If you are late in filing your claim, the insurer may question the severity of injury or damage.

Also, most business insurance policies require policyholders to promptly file claims for damage or loss. If you fail to report a loss or claim within a reasonable amount of time, your insurer may deny coverage on the basis that you've breached the insurance contract.

?Review the insurance policy carefully?

Review the insurance policy to understand what it does and doesn't cover. Be sure to read the entire contract, including all endorsements. If you have trouble understanding the wording, call your insurance broker for assistance.

Review your policy again before you file a claim. Be sure you understand the duties you are obligated to fulfill to obtain payment for a loss.

?Create an inventory of losses?

This is essential for providing a clear picture of the loss or damage. Include descriptions of items, their original values and estimated current values. You should keep receipts for high-cost items and equipment as backup documentation.

It is also helpful to include a description about the condition of the item before it was damaged. If it is possible to take photos of the damaged items, do so and submit them with your claim.

Show proof of the loss?

Insurers require policyholders to sign sworn statements that show proof of their losses, and the required information must be sent along with the statement.

This statement must be made and signed within a specific period of time, generally 60 days after the insurer's first request for it.

?Prepare for the adjuster

Be ready for the adjuster to inspect the property. Document any losses that occurred and take as many photos as necessary to provide a clear image of the losses.

If there is a large number of photos, you can create a file on the cloud or save them on a thumb drive that you can provide to the adjuster.

It is also helpful to do a walk-through of the damaged area with a video camera or a cell phone camera. Videos help show the damage live and from multiple angles. Use videos to supplement photo files.

?Make temporary repairs if needed

If you have to make temporary but necessary repairs, you can do so before the agent or adjuster surveys the property, but contact your insurer first to let them know. Do not order any unnecessary repairs.

The only types of temporary repairs that should be made are those that will prevent further damage or prevent a possible liability. For example, a temporary roof repair may be necessary to prevent the roof from collapsing and injuring people, and a broken window may be fixed to prevent rain from coming in a building and causing damage.

Since repairs are deducted from the settlement, keep receipts for any services and items purchased. For contracted work, obtain two written bids from separate companies before hiring someone.?

?A final word

Always stay organized when going through the claims process. Keep all papers and files accessible and have information ready in the event that your adjuster calls.

When talking to any repair companies or other related parties on the phone, keep track of calls and the reason for calls. Save receipts for any items that you purchased in relation to the damage.

Think Like a Risk Manager to Reduce Your Insurance Costs

All large corporations and national businesses have someone in charge of risk management, if not a whole department.?

But hiring a risk specialist or dedicating a number of employees to that kind of work is typically too expensive for most small and mid-sized companies. So, this risk mitigation typically is left to the business owner or the duties are spread among senior managers.?

Also, insurance companies like policyholders that try to manage their risks, and they reward them by reducing their premiums.?

You can reduce the cost of your insurance if you start thinking like a risk manager. You can start by organizing your risks into categories:

Human resources

Employees are your biggest asset, but they can also be one of your biggest liabilities. Businesses are regularly sued by their employees and job applicants for a number of alleged transgressions, such as discrimination, retaliation and hostile work environments. Some people are serial lawsuit filers.?

To reduce the chances of this, screen job applicants and document everything, including candidate searches, interviews, hires, reviews, complaints and behavior or performance issues of your employees, especially if you have to terminate someone.?

Also, promote a safety culture with regular training, and strive to keep your workers happy, motivated and feeling like they have are vested in your enterprise.

?

Property and assets?

Fire and theft devastate thousands of American businesses every year. Protect your property with fire and burglar alarms, and take precautions against damage from severe weather.?

Make sure that you keep your company's data safe (especially any personally identifiable information on your staff and customers, and credit card information).?

Erect firewalls, install virus and malware protection and store vital company data on- and offsite. Develop an emergency response plan in case your data is compromised or if your network fails.?

?

Income

This includes any risks that affect your company's finances and income stream. Keep thorough records and meticulously quantify your costs of goods sold, gross and net income.?

Monitor your accounting and ensure that a chosen few of your staff have access to your accounts and check books.?

Protect your business income by having a solid supply-chain management plan in place, with connections made with backup suppliers should one of your current suppliers suddenly be unable to provide you with product.?

Have a contingency management plan in place to keep your business operating if disruptions occur due to equipment failure, a breakdown in transportation networks or natural disaster.

?

Liability?

Every year there seems to be a new lawsuit threat that companies never knew existed. Make sure that you do all you can to reduce the potential of liabilities to third parties, including vendors and customers and the public at large.?

Identify any hazards on your premises, and train your employees to drive carefully and not endanger your customers or the public.?

Keep your workplace safe, as well. Engage in proactive safety training and a program to identify potential hazards to your staff. Keeping your staff safe and reducing the risk of injuries keeps your workers healthy and safe and your workers' comp premium low.

Also, have a social media policy with clear dos and don'ts.

The takeaway

While there is much more that you can do, these tips are a good place to start in thinking like a risk manager and reducing the chances of your firm having to pay out more than it should, or being sued.

Finally, consult with us as we can help you identify the biggest risks that your organization faces and what you can do to reduce those risks to a comfortable level.?

Remember, insurance is there to pay for many of these issues, but to keep your rates as low as they can be and reduce the potential of fallout, put on your risk manager cap and get to work.