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What does a business owners policy cover?
Insurance companies selling business insurance
offer policies that combine protection from all
major property and liability risks in one package.
(They also sell coverages separately.) One package
purchased by small and mid-sized businesses is the
business owners policy (BOP). Package policies are
created for businesses that generally face the same
kind and degree of risk. Larger companies might
purchase a commercial package policy or customize
their policies to meet the special risks they face.
BOPs include:
Property insurance for buildings and contents owned
by the company -- there are two different forms,
standard and special, which provides more
comprehensive coverage.
Business interruption insurance, which covers the
loss of income resulting from a fire or other
catastrophe that disrupts the operation of the
business. It can also include the extra expense of
operating out of a temporary location.
Liability protection, which covers your company's
legal responsibility for the harm it may cause to
others. This harm is a result of things that you and
your employees do or fail to do in your business
operations that may cause bodily injury or property
damage due to defective products, faulty
installations and errors in services provided.
BOPs do NOT cover professional liability, auto
insurance, worker’s compensation or health and
disability insurance. You'll need separate insurance
policies to cover professional services, vehicles
and your employees.
How can I insure my home-based business?
Let's face it. Launching and running a business
takes capital, motivation and yes, even physical
stamina to handle the stress and demands of a new or
growing venture. And it's risky. In fact, one out of
every five businesses fails within the first five
years of opening.
Handling inventory, scheduling time, purchasing
supplies, handling payroll -- there are a myriad of
procedures every home or small business entrepreneur
needs to know, but one of the most critical and
often neglected is buying proper insurance coverage.
TAKING A BUSINESS INVENTORY
What would happen if a fire or other disaster
destroyed your property, making it impossible for
you to get back to business right away? Would you
remember what property had been destroyed? One way
is by taking a complete inventory of all your
personal business property, determining its value,
and deciding what's worth insuring. Having an
up-to-date business inventory will help you get your
insurance claim settled faster, verify losses for
your business' income tax return and help you
purchase the correct amount of insurance. Start by
making a list of personal business property,
describing each item and noting where you bought it
and its make and model. Clip to your list any sales
receipts, purchase contracts, and appraisals you
have.
WHAT'S THE RIGHT COVERAGE FOR YOU?
Then there's the question of what types of
coverages you'll need. Aside from personal business
property, there is liability insurance, business
income, insurance for the building, boiler and
machinery, human failure, employee protection and
management protection, among others. The type of
coverage you need depends on a number of factors
including what kind of business you operate.
HOW TO KEEP COSTS DOWN
Start your search for a policy with trade
associations or business groups. In many cases,
these organizations are able to provide reduced
insurance rates based on the volume of business they
can offer the insurance company. They've also
negotiated coverage specific to your type of
business, which can save you significant time in
determining what you should cover. Also make sure
that you are working with an agent that understands
your type of business.
How
can I save money on my business insurance?
Here are five ways to save
money on business insurance:
Shop around.
Prices vary from company to company, so it pays to shop around.
Get the names of companies or brokers who specialize in your
type of business. Call several so that you can compare prices
and get a feel for the types of services they would provide.
It's also important to pick a company that is financially
stable. Check the financial health of insurers with rating
companies such as A.M. Best ( http://www.ambest.com ) and
Standard & Poor’s ( http://www.standardandpoors.com/ratings )
and consult consumer magazines.
Choose a higher deductible.
Deductibles represent the amount of money you pay before your
insurance policy kicks in. The higher the deductible, the less
you will pay for the policy.
Buy a package policy.
It can sometimes be cheaper to purchase a package policy, such
as a Businessowners Policy (BOP), rather than individual
coverages. A package policy provides standard coverages and
limits of liability that are appropriate for typical
small-to-medium-sized businesses.
Work closely with your agent or broker.
Your insurance professional can provide invaluable advice to
help protect your business from unexpected disasters. But you
need to keep him or her informed about any major changes in your
business. This includes major purchases, expansions or changes
in hiring or the nature of your operation. Also, get your
agent's advice in terms of disaster planning. Ask what you can
do to both reduce risks like fire or work-related accidents, as
well as the procedures that should be in place in case your
business does suffer a major catastrophe. Having the right
coverage and a well thought out disaster plan can save you money
in the long run. It may even save your business from going
under.
Ask about ways to prevent losses.
You may be able to reduce your premium for certain coverages by
following your insurer's recommendations. These can include
workplace safety, disaster preparation, and human resource
intervention.
Do
I need professional liability insurance?
Professionals that operate
their own businesses need professional liability insurance in
addition to an in-home business or businessowners policy. This
protects them against financial losses from lawsuits filed
against them by their clients. Professionals are expected to
have extensive technical knowledge or training in their
particular area of expertise. They are also expected to perform
the services for which they were hired, according to the
standards of conduct in their profession. If they fail to use
the degree of skill expected of them, they can be held
responsible in a court of law for any harm they cause to another
person or business. When liability is limited to acts of
negligence, professional liability insurance may be called
"errors and omissions" liability. Professional liability
insurance is a specialty coverage. Professional liability
coverage is not provided under homeowners endorsements, in-home
business policies or business owners policies (BOPs).
Do
I need a commercial auto insurance policy?
As a business owner,
you need the same kinds of insurance coverages for the car you
use in your business as you do for a car used for personal
travel -- liability, collision and comprehensive, medical
payments (known as personal injury protection in some states)
and coverage for uninsured motorists. In fact, many business
people use the same vehicle for both business and pleasure. If
the vehicle is owned by the business, make sure the name of the
business appears on the policy as the "principal insured" rather
than your name. This will avoid possible confusion in the event
that you need to file a claim or a claim is filed against you.
Whether you need to buy a business auto insurance policy will
depend on the kind of driving you do. A good insurance agent
will ask you many details about how you use vehicles in your
business, who will be driving them and whether employees, if you
have them, are likely to be driving their own cars for your
business. While the major coverages are the same, a business
auto policy differs from a personal auto policy in many
technical respects. Ask your insurance agent to explain all the
differences and options.
Can I insure the life of a key employee?
The loss of a key person can be a major blow to a
small business if that person is the key contact for
customers and suppliers and the management of the
business. Loss of the key person may also make the
running of the business less efficient and result in
a loss of capital. Losses caused by the death of a
key employee are insurable. Such policies will
compensate the business against significant losses
that result from that person's death or disability.
The amount and cost of insurance needed for a
particular business depends on the situation and the
age, health and role of the key employee. Key
employee life insurance pays a death benefit to the
company when the key employee dies. The policy is
normally owned by the company, which pays the
premiums and is the beneficary. Contact an insurance
agent or broker whose specializes in key employee
insurance for more on how much it may cost for your
company.
What is employment practices liability insurance
(EPLI)?
EPLI covers businesses against claims by workers
that their legal rights as employees of the company
have been violated. The number of lawsuits filed by
employees against their employers has been rising.
While most suits are filed against large
corporations, no company is immune to such lawsuits.
Recognizing that smaller companies now need this
kind of protection, some insurers provide this
coverage as an endorsement to their Businessowners
Policy (BOP). An endorsement changes the terms and
conditions of the policy. Other companies offer EPLI
as a stand-alone coverage.
EPLI provides protection against many kinds of
employee lawsuits, including claims of:
Sexual harassment
Discrimination
Wrongful termination
Breach of employment contract
Negligent evaluation
Failure to employ or promote
Wrongful discipline
Deprivation of career opportunity
Wrongful infliction of emotional distress
Mismanagement of employee benefit plans
The cost of EPLI coverage depends on your type of
business, the number of employees you have and
various risk factors such as whether your company
has been sued over employment practices in the past.
The policies will reimburse your company against the
costs of defending a lawsuit in court and for
judgments and settlements. The policy covers legal
costs, whether your company wins or loses the suit.
Policies also typically do not pay for punitive
damages or civil or criminal fines. Liabilities
covered by other insurance policies such as workers
compensation are excluded from EPLI policies.
To prevent employee lawsuits, educate your
managers and employees so that you minimize problems
in the first place:
Create effective hiring and screening programs to
avoid discrimination in hiring.
Post corporate policies throughout the workplace and
place them in employee handbooks so policies are
clear to everyone.
Show employees what steps to take if they are the
object of sexual harassment or discrimination by a
supervisor. Make sure supervisors know where the
company stands on what behaviors are not
permissible.
Document everything that occurs and the steps your
company is taking to prevent and solve employee
disputes.
What does kidnap and ransom insurance cover?
Depending on the type of policy, kidnap and ransom
policies cover some of the expense of dealing with
kidnappers and their demands. Kidnapping for ransom
money is on the upswing. Kidnap and ransom insurance
is now available as part of a comprehensive business
insurance package, as a stand-alone policy for
individuals and from a few insurance companies as
part of their homeowners insurance policy. Corporate
policies generally cover most kidnapping-related
expenses including hostage negotiation fees, lost
wages and the ransom amount. Policies for
individuals help pay for the cost of dealing with a
kidnapping but do not reimburse for ransom payments.
How do I insure my home business?
If you're running a business from your home, you may
not have enough insurance to protect your business
equipment. A typical homeowners policy provides only
$2,500 coverage for business equipment, which is
usually not enough to cover all of your business
property. You may also need coverage for liability
and lost income. Insurance companies differ
considerably in the types of business operations
they will cover under the various options they
offer. So it's wise to shop around for coverage
options as well as price.
Regardless of the type of policy you choose, if
you're a professional working out of your home, you
probably need professional liability insurance. Some
types of in-home businesses, such as those that make
or sell food products or sell home-made personal
care products, may have to buy special policies.
To insure your business, you have three basic
choices, depending on the nature of your business
and the insurance company you buy it from. They are:
Homeowners Policy Endorsement.
You may be able to add a simple endorsement to your
existing homeowners policy to double your standard
coverage for business equipment such as computers.
For as little as $25 you can raise the policy limits
from $2,500 to $5,000. Some insurance companies will
allow you to increase your coverage up to $10,000 in
increments of $2,500. You can also buy a homeowners
liability endorsement. You need liability coverage
in case clients or delivery people get hurt on your
premises. They may trip and fall down your front
steps, for example, and sue you for failure to keep
the steps in a safe condition.
The homeowners liability endorsement is typically
available only to businesses that have few
business-related visitors, such as writers. But some
insurers will provide this kind of endorsement to
piano teachers, for example, depending on the number
of students. These endorsements are available in
most states.
In-Home Business Policy/Program.
An in-home business policy provides more
comprehensive coverage for business equipment and
liability than a homeowners policy endorsement.
These policies, which may also be called in-home
business endorsements, vary significantly depending
on the insurer. In addition to protection for your
business property, most policies reimburse you for
the loss of important papers and records, accounts
receivable and off-site business property. Some will
pay for the income you lose (business interruption)
in the event your home is so badly damaged by a fire
or other disaster that it can't be used for a while.
They'll also pay for the extra expense of operating
out of a temporary location. Some in-home business
policies allow a certain number of full-time
employees, generally up to three. In-home business
policies generally include broader liability
insurance for higher amounts of coverage. They may
offer protection against lawsuits for injuries
caused by the products or services you offer, for
example. In-home business policies are available
from homeowners insurance companies and specialty
insurers that sell stand-alone in-home business
policies. This means that you don't have to purchase
your homeowners insurance from them.
Businessowners Policy (BOP).
Created specifically for small-to-mid-size
businesses, this policy is an excellent solution if
your home-based business operates in more than one
location. A BOP, like the in-home business policy,
covers business property and equipment, loss of
income, extra expense and liability. However, these
coverages are on a much broader scale than the
in-home business policy. A BOP doesn't include
workers compensation, health or disability
insurance. If you have employees, you'll need
separate policies for these coverages.
Automobile Coverage.
If you are using your car for business activities --
transporting supplies or products or visiting
customers -- you need to make certain that your
automobile insurance will protect you from accidents
that may occur while you're on business. Contact
your home or auto insurer.
Do I need business interruption insurance?
Business interruption insurance can be as vital to
your survival as a business as fire insurance. Most
people would never consider opening a business
without buying insurance to cover damage due to fire
and windstorms. But too many small business owners
fail to think about how they would manage if a fire
or other disaster damaged their business premises so
that they were temporarily unusable. Business
interruption coverage is not sold separately. It is
added to a property insurance policy or included in
a package policy.
A business that has to close down completely while
the premises are being repaired may lose out to
competitors. A quick resumption of business after a
disaster is essential.
Business interruption insurance compensates you for
lost income if your company has to vacate the
premises due to disaster-related damage that is
covered under your property insurance policy, such
as a fire. Business interruption insurance covers
the profits you would have earned, based on your
financial records, had the disaster not occurred.
The policy also covers operating expenses, like
electricity, that continue even though business
activities have come to a temporary halt.
Make sure the policy limits are sufficient to cover
your company for more than a few days. After a major
disaster, it can take more time than many people
anticipate to get the business back on track. There
is generally a 48-hour waiting period before
business interruption coverage kicks in.
The price of the policy is related to the risk of a
fire or other disaster damaging your premises. All
other things being equal, the price would probably
be higher for a restaurant than a real estate
agency, for example, because of the greater risk of
fire. Also, a real estate agency can more easily
operate out of another location.
Extra Expense Insurance
Extra expense insurance reimburses your company for
a reasonable sum of money that it spends, over and
above normal operating expenses, to avoid having to
shut down during the restoration period. Usually,
extra expenses will be paid if they help to decrease
business interruption costs. In some instances,
extra expense insurance alone may provide sufficient
coverage, without the purchase of business
interruption insurance.
Are there any disasters my property insurance
won't cover?
Yes. Floods, earthquakes and acts of terrorism are
generally not covered.
Protection against flood damage.
Property insurance policies usually exclude coverage
for flood damage. Find out from your local
government office or your commercial bank whether
your business is located in a flood zone. Also ask
around to find out whether your location has been
flooded in the past. Government projects to map
flood zones may be slow to keep up with new
developments.
If you need to buy a flood insurance policy, contact
your insurance agent or the National Flood Insurance
Program. For more information about this program
call 888-CALL-FLOOD or look at its web site http://www.fema.gov/nfip/.
The federal government requires buildings in flood
zones that don't conform to flood plain building
codes to be torn down if damage exceeds 50 percent
of the market value. Consider purchasing "ordinance
or law" coverage to help pay for the extra costs of
tearing down the structure and rebuilding it. If
your policy contains a coinsurance clause, make sure
your property is sufficiently insured to comply with
the clause.
Protection against earthquake damage.
Coverage for earthquake damage is excluded in most property
insurance policies, including homeowners and business owners
package policies. If you live in an earthquake-prone area,
you'll need a special earthquake insurance policy or commercial
property earthquake endorsement.
Earthquake policies have a different kind of deductible -- a
percentage of coverage rather than a straight dollar amount. If
the building is insured for $100,000, with a 5% deductible, for
example, in the event of an earthquake, your business would be
responsible for the first $5,000 in damage.
Remember that business interruption insurance, which reimburses
you for lost income during a shutdown, applies only to causes of
damage covered under your business property insurance policy. If
your business premises are shut down due to earthquake damage,
you'll need to have earthquake coverage to make a claim under a
business interruption policy.
How can I disaster-proof my business?
Businesses that recover
quickly are those that plan in advance. This involves not only
purchasing the right insurance, but also developing and
maintaining an adequate recovery plan.
Minimize the risk of damage in advance of an emergency by:
* Training employees in fire safety, particularly those
responsible for storage areas, housekeeping, maintenance and
operations where open flames or flammable
substances are used.
* Modernizing the electrical system since faulty wiring causes a
large percentage of nonresidential fires.
* Situating your business in a fire-resistant building - a
structure made of non-combustible materials with firewalls that
create barriers to the spread of fires - and in a building with
a fire alarm system connected to the local fire department. It
is also a good idea to have a sprinkler system to douse fires.
* Limiting storm-related damage by making sure the building
conforms to damage-resistant building codes.
Develop a disaster
recovery plan by:
* Keeping up-to-date duplicate records of both computerized and
written records. Under federal law, if companies fail to
maintain and safeguard accurate business records, the company
may still be held liable.
* Identifying the critical business activities and the resources
needed to support them in order to maintain customer service
while your business is closed for repairs.
* Planning for the worst possible scenario. Do research before a
disaster strikes by finding alternative facilities, equipment
and supplies, and locating qualified contractors to repair your
facility.
* Setting up an emergency response plan and training employees
how to execute it.
* Considering the resources you may need to activate during an
emergency such as back-up sources of power and communications
systems. Also, stockpiling the supplies you may need such as
first-aid kits and flashlights.
* Compiling a list of important phone numbers (including cell
phone numbers) and addresses, including local and state
emergency management agencies, major clients, contractors,
suppliers, realtors, financial institutions, insurance agents
and claims representatives. The list should also include
employees and company officials. Keep copies off the premises in
case the disaster is widespread.
* Deciding on a communications strategy to prevent loss of your
customers. Clients must know how to contact your company at its
new location. Among the possibilities to explore, depending on
the circumstances, are posting notices outside the original
premises; contacting clients by phone, e-mail or regular mail;
placing a notice or advertisement in local newspapers; and
asking friends and acquaintances in the local business community
to help disseminate the information.
* Review your plan on a regular basis and communicate changes to
key employees.
How
do I file a business insurance claim?
When a fire,
accident or theft occurs at your business:
* Contact your insurance agent and company right away. Any
burglaries or theft should also be reported to the police
immediately.
* Read your insurance policy so that you know what your
responsibilities are to your insurance company after a loss.
* After a disaster, take steps to protect your property from
further damage by making temporary repairs. If immediate repairs
to equipment are necessary, save the damaged parts in case the
claims adjuster is interested in examining them.
* Get at least two bids on the cost to repair or replace damaged
property.
When filing a business
interruption claim, be able to show the income the business was
generating both before and after the loss. Keep detailed records
of business activity and the extra expenses of keeping your
business operating in a temporary location during the
interruption period. If you are forced to close down, include
expenses that continue during the time that the business is
closed, such as advertising and the cost of utilities.
If you are unhappy with how your claim was handled:
* Talk to your insurance agent or claims manager to explain your
point of view.
* Call the consumer affairs or complaint department of your
insurance company and tell them your story and why you think you
deserve a larger settlement.
* Contact your state's department of insurance about your
problem.
* If you've tried all other options, consult an attorney who
specializes in insurance matters to see if he thinks you have a
valid claim that is worth a lawsuit. Provide the lawyer with all
relevant documents and a copy of your insurance policy. Tell
your attorney about any settlements offered by your insurance
company and the attorney will judge whether you have a
legitimate case that might result in a much larger settlement if
brought to trial. Attorneys work on an hourly basis or on a
contingency basis in which case they receive a portion of
whatever settlement you ultimately receive. Get your lawyer’s
fee structure in writing before you pursue your case, and make
sure you are kept current on the status of the case as it
progresses. You must agree to any settlement reached between
your attorney and the insurance company before it is made final.
PREMIUMS WRITTEN BY LINE,
PROPERTY/CASUALTY INSURANCE, 2005
($
billions)
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