Few things in business--or in life--provide you with an ironclad guarantee. There's no assurance of 100 percent success or 100 percent protection.
That's something to consider when it comes to the potential for lawsuits. There's no way to absolutely, positively prevent someone from suing you. What you can do, though, is prevent anyone from succeeding . . . and from having the litigation take its toll on your company's cash flow.
You do that through insurance. You might see it as a "protection racket" if you view the likelihood of anything happening to your business as remote. But keep this in mind: Most small companies don't have spare cash sitting around to pay the attorney fees and recovery awards that can result from a lawsuit or claim. Besides, insurance is deductible as a legitimate business expense, so it's worth investigating-- if you like to sleep soundly.
Insurance coverage is like vaccination against disease. Here are six smart ways you may not have thought of to ensure that your company can withstand a loss:
Form a limited liability entity for your company. While not strictly a form of insurance coverage, it can go a long way toward shielding your personal assets (but not business assets) from creditors. Should your business suffer a tragedy, you won't lose your home and personal bank accounts in the disaster.
Business interruption coverage. This type of insurance is designed to ensure that your business can continue to operate when you're injured or otherwise incapacitated. Property insurance may replace what's been damaged, but what will replace the lost profits, taxes and salaries that still need to be accounted for while you're trying to get back on your feet? That's where this type of coverage, also referred to as business continuation coverage, is helpful.
Malpractice/errors and omissions coverage. Because of the nature of their work, professionals are involved in very sensitive areas of a client's business. Harm to those areas can cause significant loss. Imagine a computer consultant whose insertion of computer code crashes a client's network. As a result, malpractice insurance (for licensed professionals such as doctors, lawyers, architects and accountants) and errors and omissions insurance (for other service professionals) are highly recommended. Some states' laws do not permit professionals to hide behind their limited liability entities to escape personal liability for damages.
Employment practice coverage. This type of insurance helps a company defray costs and legal fees once an employee-related claim has been made. For the past 10 years, the Equal Employment Opportunity Commission (EEOC) has received more than 75,000 complaints each year of various forms of employment discrimination. In fiscal year 2005, damages paid amounted to more than $104 million. Companies tend to skimp on both insurance and employee training, handbooks, etc. Training and handbooks let employees know what kind of conduct is expected of them and what's prohibited. Providing such tools may reduce your rates for the insurance coverage. With employee-related litigation on the rise, it makes sense to investigate how this form of insurance coverage can protect you.
Disability/long term care coverage. For many entrepreneurs, the income they receive from the business is their only income stream. What happens if you need to take an extended leave of absence for medical reasons? It's not such a far-fetched scenario. Disability insurance can help provide you with "wage replacement" funds so that you can continue to meet your expenses, despite a reduced ability (or inability) to work. But if the disability is chronic, you may have a number of other expenses the disability insurance won't cover--such as in-home care. That's where long-term care insurance comes in. Imagine a serious accident that has an extended recuperation and rehabilitation period. State disability funds may not provide adequate coverage for an entrepreneur.
Key person/life insurance coverage. Have you planned for catastrophe? If you, a business partner or a key employee of your business dies, do you have the funds to keep your family and your company going? Especially if your business has other owners, you want to be sure you have the cash on hand to buy back that owner's interest in the business . . . and this insurance helps you do just that.
Don't try to handle this all on your own. A competent insurance agent or broker can review all of the options and provide you with quote comparisons. If you don't have one, ask your colleagues or trade association for referrals. Make sure that the agent or broker has experience with businesses like yours.
Nina L. Kaufman, Esq. is an award-winning attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.
The most valuable information I can share with you is to improve your business processes from lessons learned by our peers in the small business community. I have set up a Web site for that purpose, www.preparedsmallbusiness.com. Another important lesson is that you must test your disaster preparedness plan. There are some risks that you cannot reasonably anticipate without performing a drill.
Let me share two stories with you to reinforce this point. When speaking at an event of the National Association of Women Business Owners, I met a business owner who told me how she had backed up all of her business critical data online and off-site. Brilliant--she had her tax records, customer information, and all critical data secured. Then she made a secondary backup in the event that the first one would fail. Also brilliant--in my case, I have backups stored at locations removed from one another by more than 500 miles such that in the event one has a problem, I have redundancy.
But she did not test her backups. When disaster struck, she found, to her horror, that her primary backup was defective because it did not capture all of her data; only a random sample of some business data. Then she turned to her secondary backup and learned that it was not an independent backup of the original data, but rather a copy of the defective primary backup. She did not have two independent backup sets of data; she had duplicates of a single defective set. With advance testing, this could be avoided. I do a spot check on my backup data sets monthly to make sure that what I need is safe and secure.
This is intended to be a strategic handbook to guide small business owners as you develop contingency plans that will improve your business processes in case you ever experience a disaster. You need to involve your employees, their families, your family, and others in putting in place your plan. Do not tackle this alone. And even if you put in only a few steps at a time toward a full disaster preparedness plan, you will be in a better place than you were when you started. It is not that hard.
To prove this, here is what I call "Take Five"--five things you can do in five minutes or less to improve the disaster resilience of your business:
Provide bank wire instructions to your insurance company. In the event of a disaster, normal postal operations may be disrupted and if you have to evacuate, how will you collect a paper check for your insurance claim? I provided bank wire instructions to my insurance company to ensure that should I ever file a claim, the funds would be electronically deposited to my business bank account. This not only helped my capital liquidity, it was one less thing for me to worry about after 9/11. Cash flow is critical to your business; don't let postal disruptions delay the deposit of your insurance claim. And do this for your homeowner's or tenant's insurance policies as well. It only takes a few minutes to collect this information from your bank and provide it to your insurance company.
The next time you are at the post office, pick up a handful of the "Certificate of mailing" receipts and keep them available in your office. I used them in all correspondence with disaster relief agencies, and these certificates (which cost me less than $1) preserved claims of mine that were valuable.
Obtain alternate phone numbers, such as those of out-of-state relatives or home numbers for your customers, suppliers, and employees. You can compose an e-mail request for this information and send it off in less than five minutes.
Give some thought to the "buddy system." For most small businesses, it is hardly cost-effective to lease redundant office space. I recommend a buddy system: Find another small business, a buddy, who is not in your industry and not a competitor. Suggest that you place hardware and other supplies in one another's offices to provide free or low-cost office redundancy for one another in the event of an emergency. I have buddies in neighboring states and because they come to Manhattan for business meetings, they have an office conference room they can use when they are in the city, with downtime between meetings. You can find possible buddies through business associations, friends, or your local chamber of commerce.
Make a laminated emergency contact card to put in your wallet. This will make it easier for medical personnel to reach your family.
If you have done all of the work to prepare, the response to a disaster is much easier. You would be surprised to know how calm I was on 9/11. I felt I had done everything I could to prepare, I had behaved in a responsible manner, and everything else was in God's hands. It gave me true peace of mind. And that was priceless.
Just being in business is risky. Beyond the most important risk--whether people will buy enough of your product or service to allow you to make enough money and grow--are a number of risks that could send any entrepreneur searching for a dark hole to hide in.
A fire could destroy your inventory, office equipment, records and building. A flood could cause thousands of dollars' worth of damage. Your business could be vandalized or robbed. A customer could sue you for an injury he or she suffered while on your property. A disgruntled employee could sabotage your computer system. You could be the target of an extortionist or a terrorist. The list of potential catastrophes businesses face is virtually endless.
When dealing with risk, you have three reasonable choices: eliminate it, accept it or shift the responsibility for it. Your other option is to pretend it could never happen to you. Anyone who has dealt with a business-related loss would be quick to explain the foolhardiness of this last approach.
In most cases, when you can't completely eliminate a risk, you'll use a combination of accepting and shifting to manage it. In insurance language, that's known as the deductible. Typically, the higher the deductible, the lower your premium. It sounds like a numbers game, and it is--but it's a very serious one that needs careful consideration.
In this quick guide, we take a look at business insurance to help you determine what you need, what you already have, and what could happen if you're not careful.
Jacquelyn Lynn is a business writer in Winter Park, Florida.
Agent Assignment
Not even the best agent is appropriate for every client. To find an agent who's right for you, ask for recommendations from people who have businesses like yours. You can also check with your industry's state and national trade associations for a referral or contact the Independent Insurance Agents of America. (See "Resources" at bottom of page.)
An agent can be a valuable asset in managing and growing your business. Bill Tallent Sr., a Sir Speedy Printing franchisee in Brentwood, Tennessee, has worked closely with his agent to build a customized insurance package. "He told us what coverage was necessary, but just as important, what coverage wasn't," Tallent says. "He's taught us when to call and when not to, when to file claims and when not to file claims, and how we can lower our rates."
Here are some questions to ask yourself when selecting an agent:
Is the agent familiar with your industry? To help you determine the most appropriate coverage, an agent needs to understand how your business operates and the various risks you face. He or she also needs to know about any association-sponsored or industry-specific packages that might be available.
Does the agent have access to the insurance carriers that offer the products you need? You need an agent who stays on top of industry changes and is always searching for new programs.
How innovative is the agent? Look for an agent who shows creativity and innovation in responding to changes in the industry and within your operation.
Will the agent help you prepare a bid and then negotiate with insurance companies on your behalf? Bidding and negotiating are two key elements of smart insurance shopping, and a good agent will see this as an opportunity to prove his or her skills and knowledge.
Has the agent reviewed your contractual agreements? To completely understand your liabilities, the agent should review contracts such as property, equipment and vehicle leases; purchase orders; and other business agreements.
Employee Benefits
For many companies, insurance is the foundation of an employee benefits package. But what used to be a fairly simple process has turned into a vast array of confusing choices.
There are three basic types of health plans:
Indemnity plans offer traditional benefits and open access to service providers. These plans tend to be more expensive than the other options.
Preferred Provider Organizations (PPOs) develop a network of doctors, hospitals and other health-care providers, and negotiate discounts to maintain costs.
Health Maintenance Organizations (HMOs) contract with doctors, hospitals and other service providers to deliver care. Patients are typically required to see a plan provider for care.
Some issues to consider when choosing a health plan and provider include:
Financial stability. Check out the insurer's financial health by contacting your state insurance department and reviewing the insurer's ranking from rating agencies such as A.M. Best Co. Inc., Duff & Phelps Credit Rating Co., and Standard & Poor's. Your agent can help you with this.
Plan features, limitations and exclusions. Find out what the plan does and doesn't cover; then compare that with your employees' needs.
Service record. How well does the insurer pay claims and respond to customer service and administrative requests? Check with your state's department of insurance and the Better Business Bureau to see if any complaints are on file. Ask to see the plan's latest member satisfaction survey results. And always ask for and check references.
If your employees are paying all or a portion of their health insurance premiums, allow them to pay with pretax dollars. Michael Hart, president and principal of Hart Associates Inc., an advertising agency in Maumee, Ohio, does just that for his 40 employees. "We were able to help our employees by creating a Section 125 program, which our agent administers for us, that allows our employees to pay their part of their health insurance premiums with pretax dollars," Hart says.
In addition to health insurance, consider other types of coverage as part of your benefits package. Many health insurers also offer dental and vision plans. Group life and disability coverage can help employees plan for their futures and protect their families, usually at rates lower than they can obtain on their own.
One of the most common objections to disability insurance is the cost--it's one of the more expensive types of coverage. That's because rates are based on the amount of risk the insurer is taking, and there is a much higher chance people will use their disability insurance than their life insurance. But group disability coverage is more affordable than individual policies.
Got It Covered?
Good insurance decisions are based on an understanding of what types of coverage are appropriate for the various risks you face. The basic types of business insurance include:
General liability and property coverage. Liability insurance protects you if someone gets hurt while using your product or service or is injured while on your property. The insurer not only pays the damages but also funds and handles your legal defense. Property insurance covers your physical assets--building, equipment, furnishings, fixtures, inventory and so on.
Umbrella policy. These policies provide additional liability coverage after the limits of your underlying policy are reached. For example, if someone was injured on your property and required $300,000 in medical treatment but the liability limit of your underlying policy is $250,000, your umbrella policy would cover the additional $50,000.
Automobile. If you own and operate commercial vehicles, or if you use your personal vehicle for business purposes, the vehicles need to be appropriately insured. If business use of your car is minimal, the necessary coverage can probably be included in your personal policy.
Professional liability. This type of insurance protects professional service providers, such as accountants, lawyers, doctors, dentists, pharmacists, insurance brokers and agents, and consultants, for negligence or errors and omissions that injure their clients.
Life. Various types of life insurance can be designed to protect your company. Key-man insurance pays the company upon the death of a key person, usually an owner or senior executive, to help the company deal financially with the loss and replace those services.
Workers' compensation. If you have three or more employees, you're probably required by law to provide workers' compensation insurance. This coverage pays an employee's medical expenses and provides some income replacement when a worker is injured on the job. Laws regarding workers' comp vary by state; check with your insurance agent and state insurance department to find out exactly what you need and how it's purchased.
Business interruption. If you're unable to run your business due to a covered peril (fire, storm damage, vandalism and so on), business interruption insurance will replace lost income, pay ongoing expenses and pay costs involved in getting you set up in a temporary facility. You may also get an endorsement to your policy that protects you from financial losses due to the necessary suspension of your operations as a result of a problem at a "dependent property," which is defined as property not owned, operated or controlled by you but on which you are dependent for continuation of your normal business operation.
Destroyed or damaged records. If your business records are destroyed or damaged by a covered peril, this insurance will compensate you for the inability to collect income and for the cost of reproducing the records.
Extras, Extras
Beyond the traditional types of insurance are a variety of specialty policies offering coverage you may or may not need. They include:
Weather. The impact of weather on businesses is more complex than you might think. There's the obvious, such as coverage in case weather affects events like fairs, festivals, concerts, sporting events or filming. But many other businesses are weather-sensitive and can suffer loss of profits due to weather--too much or too little rain, snow, heat, cold, sun or wind.
Flood and earthquake. Coverage for damage caused by floods and earthquakes is not included in ordinary homeowners and commercial policies. Flood insurance, which also covers damage caused by mud slides, is available through a program run by the Federal Insurance Administration; contact your agent or call (800) 427-4661 for more information.
Earthquake coverage is available as additional coverage to standard property and casualty policies. In earthquake-prone areas, this insurance is relatively expensive.
Foreign-product liability. Often, foreign manufacturers don't understand U.S. product liability exposures or are unwilling or unable to accept responsibility in the event of litigation. If you distribute, or incorporate into your product, items that are manufactured by foreign suppliers, this coverage will protect you and your suppliers.
Employment practices. Defending your company against an employment-related claim such as discrimination, sexual harassment or wrongful termination can be financially devastating. A number of insurers offer policies that pay both legal costs and damages.
What Price Is Right?
One of the most perplexing aspects of insurance is how rates are set. Rates are determined by the specific type and amount of coverage you get, the way a particular package is set up, the size and history of your company, and the degree of risk the insurer assumes. But rates are not set in stone; you can--and should--negotiate the cost of coverage with carriers.
Keep in mind that insurance companies offer discounts to customers who actively work to reduce risks, by installing smoke detectors or a security system, for example, or who buy multiple policies from the same carrier.
Millennium Mayhem
Everybody's talking about it, and nobody's really sure what's going to happen. Nonetheless, insurance companies are taking a serious look at the computer and equipment problems that may begin on January 1, 2000.
Serious equipment failures could result in bodily injury or property damage. Contact your insurance agent for a checklist that can help you recognize the problems you may have with the Y2K bug. Also, you need to determine what your insurance will and will not cover. Don't rely on insurance to take care of your Y2K problems, however. Some insurance companies may begin excluding Y2K-related problems from their general liability coverage.
Emotional Roller Coaster
If an event is serious enough to warrant an insurance claim, it will have a psychological impact on you and your employees. Dealing with your staff's problems is every bit as important as dealing with your insurance company.
"Grieving the loss caused by a disaster is a natural process, and to ignore that can have a negative impact on your recovery," says Jennell Evans, vice president of Strategic Interactions Inc., an organizational development firm in Vienna, Virginia. "While you have to attend to the business side of rebuilding, you also have to attend to the emotional functions of the group."
To do that, Evans advises, talk about the future and communicate the status of the recovery. If your employees' jobs are secure, they need to know that; if the future looks shaky, they have a right to know that, too.
Ron Ellman's experience supports Evans' position. Ellman is president of Ellman Batteries and Power Systems Inc., an industrial battery distributor in Orlando, Florida. In 1983, an electrical fire destroyed his former business. While insurance covered the building and its contents, replaced lost income and paid for other recovery efforts, Ellman was so devastated that he neglected his business, and two years later, it failed. "When [there's] a catastrophe, your employees will be as affected as you are," Ellman says. "I lost track of what was going on, and that crippled us."
If you're so distressed you don't feel capable of handling a crisis, consider bringing someone in to help with trauma counseling. Some insurance policies will pay for what Evans calls "critical incident debriefing."
Keeping Track
As much as you'd like to, insurance isn't something you can take care of once and then forget. You need to do an annual review of your needs and your coverage.
If you make changes to existing policies, make sure the paperwork is completed. That's something Sandy Doerr, president of Corporate Marketing of America in West Palm Beach, Florida, learned the hard way when he added a vehicle to his automobile policy. Instead of making the change, the company canceled his policy--and Doerr didn't discover the error for several months.
If you switch policies or insurers, study your new policy carefully. Barbara Muret, owner of Fleece & Unicorn Companies in Stillwater, Oklahoma, didn't pay attention to this detail when she changed property insurance policies last year. Her previous policy had classified furniture, fixtures and office equipment in separate categories; the new policy grouped those items. Muret didn't notice the change until a fire in an adjacent store caused so much smoke and water damage to her store that nothing was recoverable. The insurance company paid promptly based on the terms of the policy, but the amount of coverage was much less than Muret intended it to be.
Finally, don't sacrifice coverage for rates. Rick Reetz, president of Robert C. Reetz Co. Inc., a custom equipment manufacturer and metal fabricator in Pawtucket, Rhode Island, discovered the true value of insurance last year when a fire severely damaged his plant. "We never expected a loss of this magnitude," Reetz says. But his agent was on-site within hours, coordinating the repair and restoration process, and providing Reetz with immediate funds as an advance to cover the loss-related costs. While he still insists on competitive rates, Reetz says his first priority is to make sure the coverage will protect his company if another disaster occurs.
That's something to consider when it comes to the potential for lawsuits. There's no way to absolutely, positively prevent someone from suing you. What you can do, though, is prevent anyone from succeeding . . . and from having the litigation take its toll on your company's cash flow.
You do that through insurance. You might see it as a "protection racket" if you view the likelihood of anything happening to your business as remote. But keep this in mind: Most small companies don't have spare cash sitting around to pay the attorney fees and recovery awards that can result from a lawsuit or claim. Besides, insurance is deductible as a legitimate business expense, so it's worth investigating-- if you like to sleep soundly.
Insurance coverage is like vaccination against disease. Here are six smart ways you may not have thought of to ensure that your company can withstand a loss:
Form a limited liability entity for your company. While not strictly a form of insurance coverage, it can go a long way toward shielding your personal assets (but not business assets) from creditors. Should your business suffer a tragedy, you won't lose your home and personal bank accounts in the disaster.
Business interruption coverage. This type of insurance is designed to ensure that your business can continue to operate when you're injured or otherwise incapacitated. Property insurance may replace what's been damaged, but what will replace the lost profits, taxes and salaries that still need to be accounted for while you're trying to get back on your feet? That's where this type of coverage, also referred to as business continuation coverage, is helpful.
Malpractice/errors and omissions coverage. Because of the nature of their work, professionals are involved in very sensitive areas of a client's business. Harm to those areas can cause significant loss. Imagine a computer consultant whose insertion of computer code crashes a client's network. As a result, malpractice insurance (for licensed professionals such as doctors, lawyers, architects and accountants) and errors and omissions insurance (for other service professionals) are highly recommended. Some states' laws do not permit professionals to hide behind their limited liability entities to escape personal liability for damages.
Employment practice coverage. This type of insurance helps a company defray costs and legal fees once an employee-related claim has been made. For the past 10 years, the Equal Employment Opportunity Commission (EEOC) has received more than 75,000 complaints each year of various forms of employment discrimination. In fiscal year 2005, damages paid amounted to more than $104 million. Companies tend to skimp on both insurance and employee training, handbooks, etc. Training and handbooks let employees know what kind of conduct is expected of them and what's prohibited. Providing such tools may reduce your rates for the insurance coverage. With employee-related litigation on the rise, it makes sense to investigate how this form of insurance coverage can protect you.
Disability/long term care coverage. For many entrepreneurs, the income they receive from the business is their only income stream. What happens if you need to take an extended leave of absence for medical reasons? It's not such a far-fetched scenario. Disability insurance can help provide you with "wage replacement" funds so that you can continue to meet your expenses, despite a reduced ability (or inability) to work. But if the disability is chronic, you may have a number of other expenses the disability insurance won't cover--such as in-home care. That's where long-term care insurance comes in. Imagine a serious accident that has an extended recuperation and rehabilitation period. State disability funds may not provide adequate coverage for an entrepreneur.
Key person/life insurance coverage. Have you planned for catastrophe? If you, a business partner or a key employee of your business dies, do you have the funds to keep your family and your company going? Especially if your business has other owners, you want to be sure you have the cash on hand to buy back that owner's interest in the business . . . and this insurance helps you do just that.
Don't try to handle this all on your own. A competent insurance agent or broker can review all of the options and provide you with quote comparisons. If you don't have one, ask your colleagues or trade association for referrals. Make sure that the agent or broker has experience with businesses like yours.
Nina L. Kaufman, Esq. is an award-winning attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.
The most valuable information I can share with you is to improve your business processes from lessons learned by our peers in the small business community. I have set up a Web site for that purpose, www.preparedsmallbusiness.com. Another important lesson is that you must test your disaster preparedness plan. There are some risks that you cannot reasonably anticipate without performing a drill.
Let me share two stories with you to reinforce this point. When speaking at an event of the National Association of Women Business Owners, I met a business owner who told me how she had backed up all of her business critical data online and off-site. Brilliant--she had her tax records, customer information, and all critical data secured. Then she made a secondary backup in the event that the first one would fail. Also brilliant--in my case, I have backups stored at locations removed from one another by more than 500 miles such that in the event one has a problem, I have redundancy.
But she did not test her backups. When disaster struck, she found, to her horror, that her primary backup was defective because it did not capture all of her data; only a random sample of some business data. Then she turned to her secondary backup and learned that it was not an independent backup of the original data, but rather a copy of the defective primary backup. She did not have two independent backup sets of data; she had duplicates of a single defective set. With advance testing, this could be avoided. I do a spot check on my backup data sets monthly to make sure that what I need is safe and secure.
This is intended to be a strategic handbook to guide small business owners as you develop contingency plans that will improve your business processes in case you ever experience a disaster. You need to involve your employees, their families, your family, and others in putting in place your plan. Do not tackle this alone. And even if you put in only a few steps at a time toward a full disaster preparedness plan, you will be in a better place than you were when you started. It is not that hard.
To prove this, here is what I call "Take Five"--five things you can do in five minutes or less to improve the disaster resilience of your business:
Provide bank wire instructions to your insurance company. In the event of a disaster, normal postal operations may be disrupted and if you have to evacuate, how will you collect a paper check for your insurance claim? I provided bank wire instructions to my insurance company to ensure that should I ever file a claim, the funds would be electronically deposited to my business bank account. This not only helped my capital liquidity, it was one less thing for me to worry about after 9/11. Cash flow is critical to your business; don't let postal disruptions delay the deposit of your insurance claim. And do this for your homeowner's or tenant's insurance policies as well. It only takes a few minutes to collect this information from your bank and provide it to your insurance company.
The next time you are at the post office, pick up a handful of the "Certificate of mailing" receipts and keep them available in your office. I used them in all correspondence with disaster relief agencies, and these certificates (which cost me less than $1) preserved claims of mine that were valuable.
Obtain alternate phone numbers, such as those of out-of-state relatives or home numbers for your customers, suppliers, and employees. You can compose an e-mail request for this information and send it off in less than five minutes.
Give some thought to the "buddy system." For most small businesses, it is hardly cost-effective to lease redundant office space. I recommend a buddy system: Find another small business, a buddy, who is not in your industry and not a competitor. Suggest that you place hardware and other supplies in one another's offices to provide free or low-cost office redundancy for one another in the event of an emergency. I have buddies in neighboring states and because they come to Manhattan for business meetings, they have an office conference room they can use when they are in the city, with downtime between meetings. You can find possible buddies through business associations, friends, or your local chamber of commerce.
Make a laminated emergency contact card to put in your wallet. This will make it easier for medical personnel to reach your family.
If you have done all of the work to prepare, the response to a disaster is much easier. You would be surprised to know how calm I was on 9/11. I felt I had done everything I could to prepare, I had behaved in a responsible manner, and everything else was in God's hands. It gave me true peace of mind. And that was priceless.
Just being in business is risky. Beyond the most important risk--whether people will buy enough of your product or service to allow you to make enough money and grow--are a number of risks that could send any entrepreneur searching for a dark hole to hide in.
A fire could destroy your inventory, office equipment, records and building. A flood could cause thousands of dollars' worth of damage. Your business could be vandalized or robbed. A customer could sue you for an injury he or she suffered while on your property. A disgruntled employee could sabotage your computer system. You could be the target of an extortionist or a terrorist. The list of potential catastrophes businesses face is virtually endless.
When dealing with risk, you have three reasonable choices: eliminate it, accept it or shift the responsibility for it. Your other option is to pretend it could never happen to you. Anyone who has dealt with a business-related loss would be quick to explain the foolhardiness of this last approach.
In most cases, when you can't completely eliminate a risk, you'll use a combination of accepting and shifting to manage it. In insurance language, that's known as the deductible. Typically, the higher the deductible, the lower your premium. It sounds like a numbers game, and it is--but it's a very serious one that needs careful consideration.
In this quick guide, we take a look at business insurance to help you determine what you need, what you already have, and what could happen if you're not careful.
Jacquelyn Lynn is a business writer in Winter Park, Florida.
Agent Assignment
Not even the best agent is appropriate for every client. To find an agent who's right for you, ask for recommendations from people who have businesses like yours. You can also check with your industry's state and national trade associations for a referral or contact the Independent Insurance Agents of America. (See "Resources" at bottom of page.)
An agent can be a valuable asset in managing and growing your business. Bill Tallent Sr., a Sir Speedy Printing franchisee in Brentwood, Tennessee, has worked closely with his agent to build a customized insurance package. "He told us what coverage was necessary, but just as important, what coverage wasn't," Tallent says. "He's taught us when to call and when not to, when to file claims and when not to file claims, and how we can lower our rates."
Here are some questions to ask yourself when selecting an agent:
Is the agent familiar with your industry? To help you determine the most appropriate coverage, an agent needs to understand how your business operates and the various risks you face. He or she also needs to know about any association-sponsored or industry-specific packages that might be available.
Does the agent have access to the insurance carriers that offer the products you need? You need an agent who stays on top of industry changes and is always searching for new programs.
How innovative is the agent? Look for an agent who shows creativity and innovation in responding to changes in the industry and within your operation.
Will the agent help you prepare a bid and then negotiate with insurance companies on your behalf? Bidding and negotiating are two key elements of smart insurance shopping, and a good agent will see this as an opportunity to prove his or her skills and knowledge.
Has the agent reviewed your contractual agreements? To completely understand your liabilities, the agent should review contracts such as property, equipment and vehicle leases; purchase orders; and other business agreements.
Employee Benefits
For many companies, insurance is the foundation of an employee benefits package. But what used to be a fairly simple process has turned into a vast array of confusing choices.
There are three basic types of health plans:
Indemnity plans offer traditional benefits and open access to service providers. These plans tend to be more expensive than the other options.
Preferred Provider Organizations (PPOs) develop a network of doctors, hospitals and other health-care providers, and negotiate discounts to maintain costs.
Health Maintenance Organizations (HMOs) contract with doctors, hospitals and other service providers to deliver care. Patients are typically required to see a plan provider for care.
Some issues to consider when choosing a health plan and provider include:
Financial stability. Check out the insurer's financial health by contacting your state insurance department and reviewing the insurer's ranking from rating agencies such as A.M. Best Co. Inc., Duff & Phelps Credit Rating Co., and Standard & Poor's. Your agent can help you with this.
Plan features, limitations and exclusions. Find out what the plan does and doesn't cover; then compare that with your employees' needs.
Service record. How well does the insurer pay claims and respond to customer service and administrative requests? Check with your state's department of insurance and the Better Business Bureau to see if any complaints are on file. Ask to see the plan's latest member satisfaction survey results. And always ask for and check references.
If your employees are paying all or a portion of their health insurance premiums, allow them to pay with pretax dollars. Michael Hart, president and principal of Hart Associates Inc., an advertising agency in Maumee, Ohio, does just that for his 40 employees. "We were able to help our employees by creating a Section 125 program, which our agent administers for us, that allows our employees to pay their part of their health insurance premiums with pretax dollars," Hart says.
In addition to health insurance, consider other types of coverage as part of your benefits package. Many health insurers also offer dental and vision plans. Group life and disability coverage can help employees plan for their futures and protect their families, usually at rates lower than they can obtain on their own.
One of the most common objections to disability insurance is the cost--it's one of the more expensive types of coverage. That's because rates are based on the amount of risk the insurer is taking, and there is a much higher chance people will use their disability insurance than their life insurance. But group disability coverage is more affordable than individual policies.
Got It Covered?
Good insurance decisions are based on an understanding of what types of coverage are appropriate for the various risks you face. The basic types of business insurance include:
General liability and property coverage. Liability insurance protects you if someone gets hurt while using your product or service or is injured while on your property. The insurer not only pays the damages but also funds and handles your legal defense. Property insurance covers your physical assets--building, equipment, furnishings, fixtures, inventory and so on.
Umbrella policy. These policies provide additional liability coverage after the limits of your underlying policy are reached. For example, if someone was injured on your property and required $300,000 in medical treatment but the liability limit of your underlying policy is $250,000, your umbrella policy would cover the additional $50,000.
Automobile. If you own and operate commercial vehicles, or if you use your personal vehicle for business purposes, the vehicles need to be appropriately insured. If business use of your car is minimal, the necessary coverage can probably be included in your personal policy.
Professional liability. This type of insurance protects professional service providers, such as accountants, lawyers, doctors, dentists, pharmacists, insurance brokers and agents, and consultants, for negligence or errors and omissions that injure their clients.
Life. Various types of life insurance can be designed to protect your company. Key-man insurance pays the company upon the death of a key person, usually an owner or senior executive, to help the company deal financially with the loss and replace those services.
Workers' compensation. If you have three or more employees, you're probably required by law to provide workers' compensation insurance. This coverage pays an employee's medical expenses and provides some income replacement when a worker is injured on the job. Laws regarding workers' comp vary by state; check with your insurance agent and state insurance department to find out exactly what you need and how it's purchased.
Business interruption. If you're unable to run your business due to a covered peril (fire, storm damage, vandalism and so on), business interruption insurance will replace lost income, pay ongoing expenses and pay costs involved in getting you set up in a temporary facility. You may also get an endorsement to your policy that protects you from financial losses due to the necessary suspension of your operations as a result of a problem at a "dependent property," which is defined as property not owned, operated or controlled by you but on which you are dependent for continuation of your normal business operation.
Destroyed or damaged records. If your business records are destroyed or damaged by a covered peril, this insurance will compensate you for the inability to collect income and for the cost of reproducing the records.
Extras, Extras
Beyond the traditional types of insurance are a variety of specialty policies offering coverage you may or may not need. They include:
Weather. The impact of weather on businesses is more complex than you might think. There's the obvious, such as coverage in case weather affects events like fairs, festivals, concerts, sporting events or filming. But many other businesses are weather-sensitive and can suffer loss of profits due to weather--too much or too little rain, snow, heat, cold, sun or wind.
Flood and earthquake. Coverage for damage caused by floods and earthquakes is not included in ordinary homeowners and commercial policies. Flood insurance, which also covers damage caused by mud slides, is available through a program run by the Federal Insurance Administration; contact your agent or call (800) 427-4661 for more information.
Earthquake coverage is available as additional coverage to standard property and casualty policies. In earthquake-prone areas, this insurance is relatively expensive.
Foreign-product liability. Often, foreign manufacturers don't understand U.S. product liability exposures or are unwilling or unable to accept responsibility in the event of litigation. If you distribute, or incorporate into your product, items that are manufactured by foreign suppliers, this coverage will protect you and your suppliers.
Employment practices. Defending your company against an employment-related claim such as discrimination, sexual harassment or wrongful termination can be financially devastating. A number of insurers offer policies that pay both legal costs and damages.
What Price Is Right?
One of the most perplexing aspects of insurance is how rates are set. Rates are determined by the specific type and amount of coverage you get, the way a particular package is set up, the size and history of your company, and the degree of risk the insurer assumes. But rates are not set in stone; you can--and should--negotiate the cost of coverage with carriers.
Keep in mind that insurance companies offer discounts to customers who actively work to reduce risks, by installing smoke detectors or a security system, for example, or who buy multiple policies from the same carrier.
Millennium Mayhem
Everybody's talking about it, and nobody's really sure what's going to happen. Nonetheless, insurance companies are taking a serious look at the computer and equipment problems that may begin on January 1, 2000.
Serious equipment failures could result in bodily injury or property damage. Contact your insurance agent for a checklist that can help you recognize the problems you may have with the Y2K bug. Also, you need to determine what your insurance will and will not cover. Don't rely on insurance to take care of your Y2K problems, however. Some insurance companies may begin excluding Y2K-related problems from their general liability coverage.
Emotional Roller Coaster
If an event is serious enough to warrant an insurance claim, it will have a psychological impact on you and your employees. Dealing with your staff's problems is every bit as important as dealing with your insurance company.
"Grieving the loss caused by a disaster is a natural process, and to ignore that can have a negative impact on your recovery," says Jennell Evans, vice president of Strategic Interactions Inc., an organizational development firm in Vienna, Virginia. "While you have to attend to the business side of rebuilding, you also have to attend to the emotional functions of the group."
To do that, Evans advises, talk about the future and communicate the status of the recovery. If your employees' jobs are secure, they need to know that; if the future looks shaky, they have a right to know that, too.
Ron Ellman's experience supports Evans' position. Ellman is president of Ellman Batteries and Power Systems Inc., an industrial battery distributor in Orlando, Florida. In 1983, an electrical fire destroyed his former business. While insurance covered the building and its contents, replaced lost income and paid for other recovery efforts, Ellman was so devastated that he neglected his business, and two years later, it failed. "When [there's] a catastrophe, your employees will be as affected as you are," Ellman says. "I lost track of what was going on, and that crippled us."
If you're so distressed you don't feel capable of handling a crisis, consider bringing someone in to help with trauma counseling. Some insurance policies will pay for what Evans calls "critical incident debriefing."
Keeping Track
As much as you'd like to, insurance isn't something you can take care of once and then forget. You need to do an annual review of your needs and your coverage.
If you make changes to existing policies, make sure the paperwork is completed. That's something Sandy Doerr, president of Corporate Marketing of America in West Palm Beach, Florida, learned the hard way when he added a vehicle to his automobile policy. Instead of making the change, the company canceled his policy--and Doerr didn't discover the error for several months.
If you switch policies or insurers, study your new policy carefully. Barbara Muret, owner of Fleece & Unicorn Companies in Stillwater, Oklahoma, didn't pay attention to this detail when she changed property insurance policies last year. Her previous policy had classified furniture, fixtures and office equipment in separate categories; the new policy grouped those items. Muret didn't notice the change until a fire in an adjacent store caused so much smoke and water damage to her store that nothing was recoverable. The insurance company paid promptly based on the terms of the policy, but the amount of coverage was much less than Muret intended it to be.
Finally, don't sacrifice coverage for rates. Rick Reetz, president of Robert C. Reetz Co. Inc., a custom equipment manufacturer and metal fabricator in Pawtucket, Rhode Island, discovered the true value of insurance last year when a fire severely damaged his plant. "We never expected a loss of this magnitude," Reetz says. But his agent was on-site within hours, coordinating the repair and restoration process, and providing Reetz with immediate funds as an advance to cover the loss-related costs. While he still insists on competitive rates, Reetz says his first priority is to make sure the coverage will protect his company if another disaster occurs.
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