Business Insurance Basics
Some of you may be seasoned business owners. This article may still be helpful to you, as our experience is that things aren’t always as they seem when it comes to your business insurance. Many business owners set their insurance up years ago. Upon a close inspection, and as life goes by and things change, current coverages may become dangerously incorrect. However, for the most part, we write this to get the beginners up to speed. We will cover the various types of insurance, when they are required, and what coverages to be on the lookout for.
General Liability Insurance (GL): This is one of the first commercial insurance policies you will buy if you are starting a business, leasing an office, or wanting to work with other companies that require insurance. This type of policy covers accidental bodily injury and property damage caused to third parties. “Slips and falls” insurance as it’s sometimes referred to. Many folks will buy a GL policy and mistakenly think “I’m covered for everything”. This can be a fatal mistake to your business’ survival. It is important to learn how a GL policy works, and when it comes into play.
The policy is rated by “class codes”, or the genre of work you do (example: Flooring installation). If you purchase a policy for your flooring business, and cause injury while you are doing some cabinet work, the claim may not be covered. It is important to have all your “classes” listed.
It is also important to note that GL does not cover your professional mistakes. We will discuss “Professional Liability Insurance” momentarily, but GL policies cover inadvertent bodily injury and property damage caused. Not damage or injury caused by professional malpractice. Let’s look at an example- A landscaper is working at a residential job site installing a drainage system in the back yard. The contractor mistakenly cuts through the home’s underground, electrical line causing expensive damage, and loss of power. This is NOT covered. The contractor is supposed to be in control of his or her work. The same contractor, however, is not able to finish the job the same day and leaves the exposed trench overnight. The homeowner or their child, not paying attention, accidentally trips and injures themselves. This WOULD be covered.
Business Owners Policy (BOP): This policy is a fancy name for the above GL coverage in addition to property coverages, and other commonly requested bells and whistles for your industry. If you own (or even lease) an office space, if you have tools, computers, or equipment that are used for business, then you will want a BOP. The BOP also commonly offers “business interruption” “employment practices liability” and “cyber liability” to certain classes as inexpensive endorsements. The point of the BOP is to simplify your insurance coverage by including much of it under one policy. The BOP is typically offered as a simple solution to businesses under a certain revenue threshold and class code. If your business really takes off, you may eventually need something more sophisticated.
Professional Liability Insurance (PL): This policy may have a different name depending on your line of work; professional liability, errors and omissions, or malpractice insurance are the most common. This covers your professional mistakes and pays to defend you in court even if the charge is false. This coverage is many times, more expensive than the GL, but cost is highly dependent on your industry and size of your operation.
The policy will typically come with a “retroactive date”. It is important that once you buy this policy you NEVER let it lapse. If you bought a policy today, then today would be your retroactive date. That date will typically never change, even if you buy a new policy. When you switch your insurance, you would keep your same retroactive date. The new insurance company would cover you for any claims arising from a mistake made since that date. This is important since many times, the alleged thing you are being accused of may have taken place a long time ago. It may take a while before the claimant can calculate damage and find an attorney. It is also critical that you have your “classes” accurately accounted for with this policy.
Workers Compensation (WC): Work comp insurance pays for the injuries of your employees, and perhaps their inability to work after a work-place injury. This coverage is commonly required by law, and the cost is heavily dependent on your (again) “classes”, and your payroll. Your policy will assign a rate for the classes selected. For example, you may have a furniture moving business with a rate of $7.88 per $100 in payroll, or you may have an accounting firm with a rate of $0.50 per $100 in payroll. You can see how the two different companies might have drastically different expenses for work comp policies. However, one business is way more likely to result in injuries. Owners and officers many times have the choice to “include” or “exclude” themselves. Many owners make the mistake of assuming it is best to exclude themselves, relying solely on their health insurance. The benefit of including yourself is that work comp can pay for lost wages, whereas your health insurance strictly pays hospital bills.
Business Auto Policy (BAP): Or commercial auto insurance. Established businesses have known about this policy for a while, but what if you are new in business? Are you using your personal pick-up truck to drive on appointments? Do you have a sticker with your company logo on the side of your vehicle? Do you let your team members drive your vehicle? Do you have your employees use their personal vehicles for job related activities? Sometimes the need for business auto insurance is not so clear. It is not enough to simply have a policy with your vehicle listed. The policy needs to be set up correctly, and the insurance company needs to know and agree to the usage explicitly. Auto accidents are notorious for being potentially expensive, especially if injuries are involved. The insurance company is not thrilled to be on the hook for a million-dollar bill. Don’t give them a reason to deny the claim, because your vehicle was rated for “personal” use. Consult with one of our independent insurance agents at Aspire Insurance Agency if you are unsure of where you stand.
Inland Marine (IM): No, not a boat policy. Inland marine is just a bizarre name for a policy that covers your equipment or property that is in transit. Are you a DJ with expensive electronic equipment you take with you to a gig? What about a photographer with a pricey camera and lighting equipment? Or maybe you’re a contractor who owns a bobcat you leave overnight at the job site. This type of property is generally riskier to insure, as its environment may lend additional risk of damage or theft. An inland marine policy would be something to discuss with your agent if your property is not tied to a single location.
Life insurance: First off, if you own a business, a personal life insurance policy
is a MUST. This section, however, is going to focus on commercial uses of life insurance:
-Key Man: Do you have an employee that is vital to your daily business operations? Would your business suffer financially if this person were critically injured, ill, or worse? As a business owner, you have an insurable interest in the life of this individual. Your business can be the beneficiary on a life insurance policy covering this employee if something were to happen. This money can be used to stay in business and replace the employee if need be. Usually a cheap, term life insurance policy will suffice. Work with your agent to determine the best coverage level for your need and budget.
-Business Overhead Expense (BOE): This is a disability insurance policy covering you, the owner. Unlike a regular disability policy, the benefit is not specific to your income; the focus is instead on your incurred expenses. This policy is used to cover key expenses in the event you are disabled. BOE is not used to replace profits (a personal disability policy would replace your personal income). A BOE typically covers, rent, utilities, equipment maintenance, accounting fees, business insurance premiums, and employee salaries.
-Group Life Insurance: WHAT A GREAT BOSS YOU ARE!! So nice of you to provide life insurance to your employees as a way to say ‘thank you’. Although a personal life insurance policy is advised for most people, the truth is, many people rely solely on the life insurance provided by their employer. Stick out from the crowd by offering benefits and attract better talent!
All of this insurance can add up in cost. It can be a shock to someone starting their own business. What is potentially more costly is having the wrong insurance. Find an independent insurance agent that represents many companies. Not only will they be able to get you the lowest cost for the coverage you need, but they will have broader coverage options. A “captive” agent, or one that represents only one company may be tempted to sell you the closest thing they have to your need. An independent insurance agent will find you the exact product you need, regardless of what company offers it. For FREE quotes and opinions, contact Aspire Insurance Agency today!