20 Jan The Pitt Falls of Insurance in a Small Business
Insurance in a small business can be as important as the owner, the key employee, or the profits it brings in. When I sit down with my clients for reviews we always look at the past year and then what is to come in the next year. So many times the issue of cost of coverage is the first thing the client wants to discuss especially in the current economy. In this post though I want to cover liability, property, loss of income, workers compensation, and the effect it can have on your business.
Let’s start with Liability and how important it is. Most of new or small business owners take this coverage for granted in the fact that they don’t understand what this will do for them. Liability is the coverage that will defend you or pay for most type of situations that you can get into from your type of risk. Just think about this, a customer or person you provide service for doesn’t like what you have done for them or you do something more to them. Without liability coverage your business is exposed or your assets are exposed to the out of pocket defense cost you might face or the out of pocket claims you would have to pay. So the advantages as you can see will definitely out weigh the cost of any coverage.
Property can come in the form of contents, buildings, equipment, or inventory. These things cannot be taken for granted as these are the things that give your business value. Imagine a fire, theft, tornado, and or yes even an earthquake. Without properly scheduled coverage’s on your commercial insurance policy you could be left at ground zero. Now how many of you want to start all over again or have the funds to totally replace these items all at once? Property coverage is protecting what you have worked hard to create.
Loss of income is one of the most confusing policy coverage’s I think there is to explain. This type of coverage is put in place in order to make sure you have money to relocate, buy additional tools to make your situation better, hire temporary employees, rent a temporary location, and the biggest thing to replace any lost sales or revenue you are facing due to a situation out of your control. The hardest part to watch with this coverage is to make sure when setting it up you buy enough coverage to actually cover the loss. It can be expensive but believe me when it comes time to use it you will be glad it is there.
Workers Compensation is mandated differently from state to state so when purchasing it always make sure your agent knows the state laws. This coverage again will protect your business to the point if you don’t have it and your employee gets injured on the job it is up to you to pay. Some states allow you to pay claims up to a certain amount so that it doesn’t affect your policy loss ratio and increase your premiums so always look for that. Some states do not make you have coverage unless you have a certain amount of employees or are in a certain classification such as a contractor. Workers compensation I have found can create some the highest paid claims a business can see as the claim can continue for many years until the employee is either considered healed or decide to make a settlement with the insurance company.
The effect of not having these coverage’s are obvious. The problem I have faced over the last 10 years as an insurance agent is that until a business has one of these claims they have a hard time justifying the expense. This kind of thinking usually ends in too little too late. So remember you spend time with your banker and accountant annually looking at your financial status but spending time with your insurance agent will be just as important.