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What type of insurance do I really need if I do not have many major assets?
There are two broad classes of insurance: losses to your property and your liability for losses you cause to others.
If you do not have many assets, you may not need much protection for losses to your property. One of your greatest assets is your future potential revenue. You can insure loss of future revenues with Business Income Insurance. Other items to consider insuring when you have minimal assets include computer equipment including losses due to computer viruses, theft of cellular phones, and your interest in tenants improvements and betterments of leased premises. You may also want to review your lease agreements to see if you are responsible for insuring your building.
Coverage for your liability to others is coverage you need regardless of your owned assets. Your liability is more a function of the size loss you cause than it is how much you own. Court judgments can exceed your retained earnings and attach to your future earnings. You should always consider the following coverages from your first day of operation: Automobile Liability, Workers’ Compensation, Comprehensive General Liability.
Is it OK for my coverage to be placed with several different companies?
Using multiple carriers increases your potential for gaps in coverage. Many exclusions in an insurance contract are there because you would be better covered in a different policy. A single insurance carrier can control how their contracts interact with one another. You can minimize, but not eliminate, your risk of coverage gaps by making sure that each of your insurance carriers uses contracts supported by the Insurance Services Organization.
Is it OK for my coverage to be placed with several different effective dates?
A common practice in the past has been to use different effective dates on each policy to better spread out payment terms. A better solution is to choose more lenient payment options. Varying effective dates means that you will have to deal with insurance more frequently throughout the year. Limit gaps in coverage can also occur if your Umbrella policy effective dates are different from the effective dates of your underlying coverage.
Are my joint ventures covered?
Joint Ventures are separate legal entities and not a part of your company legally. As such, insurance policies are generally not written to include coverage for your joint ventures.
What if someone sues my business?
No business can afford to be unprepared for a lawsuit. Liability insurance protects your business assets when the business is sued for something the business did (or failed to do) that contributed to injury or property damage to someone else.
What is my true cost of insurance?
- Your total cost for insurance is not limited to the cost of your insurance policies. Hidden costs of insurance can often exceed the policy charges by ten times. Here are some items to consider:
- Many carriers inflate Workers’ Compensation reserves because it drives up your experience modification. Pay attention to the reserves to make sure they are set adequately and are adjusted appropriately as the claim develops. Your claims reside in your Experience Modification for three years. Over that time you will pay over $1 in premium for every $1 in reported reserves, even if those reserves are eventually closed without payment.
- Claims handling delays. Delays in claim payments for losses to your property are a direct drain on your working capital. Delays in claim payments to other parties often create animosity and increase the settlement amount. Higher claim payments usually mean that your future costs for insurance will increase.
- Loss Control inspections. Your time is money. You should obtain an agenda prior to using a carrier loss control inspector. If their agenda includes a thorough loss control evaluation with recommendations, it may be worthwhile. If it is a simple walkthrough, as most of them are, then you should delegate that visit to someone else in your company.
- Over billing. You should be able to easily track the amounts you are billed for insurance premiums, deposits, and deductibles. Be careful that the deposit you pay is applied to your annual premium. A $10,000 quote can turn into a $2,000 non-working deposit plus a $10,000 annual charge.
- Ask how deductibles apply. When you see two deductibles for $1000, you need to ask more questions. General Liability deductibles can apply per claim or per accident. Do not be surprised when you see this because it happens regularly. For example, a spray painter could experience one accident and damage 20 vehicles. A $1000 per accident deductible would cost that painter $1000 for the entire accident. A per claim deductible would cost that painter up to $20,000 ($1,000 for each vehicle). You should ask similar questions about your property. Does the deductible apply per building, per loss, per catastrophe?
- Low sublimits on necessary coverages. Insurance policies are never structured to provide high limits for every coverage. If they did, the policies would be too expensive. Just make sure that you ask for a list of every coverage with a sublimit so you can make an informed decision.
What do financial ratings mean?
You can select from a variety of financial rating services including A. M. Best and Standard & Poor’s. These services offer an evaluation of both the stability and size of an insurance company.
Will my claim be paid when an insurance carrier becomes bankrupt?
Your state government protects you from insurance fraud and insurance carrier failures. If you place your insurance through a carrier that is admitted for coverage in your state, you are protected by your state. Most states use an Insurance Guarantee Fund of some type to pay for the claims. You will normally find that the claim service will change. Most states have claims administration staff who will actually take possession of your claim file and process your claim until it is closed. In rare instances, you may receive only partial payment of your claim. If you place your coverage through a carrier that is not admitted in your state, you do not have Insurance Guarantee Fund protection.
What is the difference between admitted and non-admitted insurance companies?
State governments regulate the insurance marketplace within their state. Insurance companies who want to conduct business in a state must be approved either as an admitted carrier or as a non-admitted carrier. Admitted carriers are subject to the rate and coverage oversight of the state. They also file financial reports to the state and pay premium taxes. In return, the state guarantees the claim payment ability of these companies with an Insurance Guarantee Fund. Non-admitted carriers use rates and forms that have not been reviewed by the state. Also, you pay premium taxes in addition to the price for insurance. The state Guarantee Funds do not apply to claims for non-admitted carriers.
Why are some insurance policies auditable?
Insurance companies assume your risk of loss. Your risk of loss increases as your exposure increases. For example, you are more likely to experience injury to an employee if your payroll is $1,000,000 per year than if your payroll is $100,000 per year. Some coverage exposures fluctuate in a manner that can be tracked. The most common examples of this are payroll and sales.
What about Crime coverage?
Crime coverage can be an endorsement on a Business Owners policy, or it can be written as a separate policy. There are several types of crime coverage:
- Money and Security coverage pays for money and securities taken by theft, robbery, burglary, disappearance, or destruction.
- Forgery or Alteration Coverage provides protection for altered or forged drafts of your checks by a third party.
- Employee Dishonesty coverage pays for losses caused by most dishonest acts of your employees, such as embezzlement and theft (a common exclusion for employee dishonesty is an employee that you know has committed a dishonest act either prior to your employment or after).
What is Professional Liability Insurance?
Professional Liability insurance protects you, your business, and your employees against claims for damages you become legally obligated to pay to one of your clients as a result of an error or omission in the professional advice or work you provided to that client.
What does Professional Liability Insurance provide?
This insurance pays for settlements or judgments for which you become liable. It also pays the costs involved in defending a claim, which includes attorney’s fees, court costs, and other related expenses involved in the investigation and settlement process.
What does “Defense Inside the Limits” mean?
Defense Inside means that the legal costs to defend your claim will be deducted from your limit of coverage, thereby decreasing the amount available to pay indemnity costs (such as damages, settlements, or judgments).
What does “Defense Outside the Limits” mean?
Defense Outside means that the insurance company will pay, on your behalf, the settlement or judgment awarded (indemnity) for your claims. The insurance company in addition to the limit also pays defense costs. Therefore, the payment of defense expenses will not erode the limits of liability to pay indemnity and will continue to be paid until your limits of liability have been exhausted.
What happens if a claims-made policy is not renewed?
All coverage terminates when a claims-made policy lapses, ends, or is not renewed. An extended reporting period is generally offered to allow additional time to report claims for acts that occurred when the policy was in force.
How does a claims-made policy work?
A claims-made policy protects you against claims or incidents that are reported while the policy is in force or during the extended reporting period. The negligent act, error, or omission must have occurred during the specific time frame set by the policy.
What is an extended reporting period?
When a claims-made policy is canceled or is nonrenewed for any reason other than non-payment of premium, an extended reporting period (ERP), extends the amount of time in which you can report a claim. All ERPs extend only the time to report negligent acts, errors, or omissions that occurred during the time that the policy was in force. They do not cover acts that occur after the policy has ended. Other specifics of ERPs vary by company and policy. Some are automatic, free, and last only for a short period after the policy ends. Other ERPs are optional and include longer reporting periods at an additional premium.
What is a deductible?
A deductible is the monetary portion of a claim for which the policyholder is responsible.
Does the deductible apply to all payments?
The deductible applies both to your defense expenses (legal costs) and your indemnity payments (settlements or judgments). The deductible applies separately for each claim.
Are employees covered under the Professional Liability Insurance policy?
Yes, as long as the claim arises out of professional services they perform for your business.
Are directors, officers, stockholders, partners, and principles eligible for coverage?
Yes, as long as the claim arises out of their professional services for your business.
What is a Certificate of Insurance?
A Certificate of Insurance (COI) is a widely accepted “insurance” form that provides proof of insurance coverage to your clients.
What is an Exclusion?
An Exclusion is a component of the policy that excludes coverage in the policy in some way. Always review the exclusions of a policy, as they can limit the coverage under the policy.
What does “Limits of Liability” or “Limits of Coverage” mean?
The amount of money that the insurance company will pay on your behalf for claims. The policy has two different limits. There is a per claim limit, which is the most that the insurance company will pay for any one claim during the policy period. Then there is an aggregate claim limit, which is the limit on the total amount of all of your claims during the policy period.
What is an Endorsement?
An Endorsement is an additional document to the policy that amends the basic policy coverage. It is very important to always review the endorsements to a policy as they can change coverage drastically.
What is General Liability Insurance?
General Liability (GL) insurance provides your business protection from lawsuits brought by third parties alleging bodily injury, property damage, personal injury and advertising injury, as well as, paying any sums you are legally obligated to pay in damages up to the applicable policy limit. GL insurance covers such incidents as a client slipping, falling, or hurting himself in your place of business or someone hurting herself on a product that you manufactured or sold.
What is negligence?
Negligence is failure to use such care as a reasonable prudent person would use in similar circumstances.
Am I obligated to open my operation and premises to the insurance company for inspection and for examination and audit of my books and records at any time during my policy period?
Yes. You must provide copies of records upon request.
I am just getting my business started. Do I need insurance right away?
Yes, because the chance that you could suffer a loss begins with the first day of business. You can’t get help after the fact. If you suffer a loss and have no insurance or have improper or insufficient coverage, there is very little, if anything, your insurance agent can do to help you.
You must be prepared for the risks that are inherent in any business and the losses, sometimes catastrophic, that can result.
Also, many states and local jurisdictions require that businesses be insured to begin operating. If you rent space for your business, your landlord probably requires that you be adequately insured as well.
Is insurance coverage different for different businesses?
It can be. Many small businesses are now insured under package policies that cover the major property and liability exposures as well as loss of income. A common package policy used by many small businesses is called the Business Owners policy (BOP).
I work out of my home. Will my homeowners insurance cover my business?
Yes, but on a very limited basis. Loss of property is usually reimbursed up to $2,500 in the house and up to $250 for business property damaged or lost away from the premises. Even if your business is a sideline, such as a craft studio, these limits may be too low to cover all the equipment and materials your have accumulated. No business liability coverage is included in a standard homeowners policy.
Who keeps an eye on insurance companies?
Insurance is a heavily regulated industry. Every state has some sort of department, administration, or agency that regulates and monitors every insurer operating within the state’s borders. In addition to approving rates, your state’s insurance department is involved in all insurance matters on behalf of private citizens and businesses. It also issues operating licenses to insurers and agents based on their ability to meet the state’s requirements for conduct and knowledge about insurance issues.
Your insurance company and agent work closely with your insurance department to make sure you are getting the best and fairest possible service within the state’s guidelines. If you ever have difficulty settling a claim, work with your agent to resolve the issue. However, you can also contact your state’s insurance department if you wish to know more about your options and rights as an insurance consumer.
What is an Umbrella policy?
An umbrella policy extends the limits of the primary policy. It covers claims over and above the aggregate limits of your primary policy and, in some areas, provides broader coverage than the primary policies provide.