Securing proper insurance for your business can mean the difference between survival and failure in times of financial loss. However, in spite of its importance, many small business owners still don’t know all they should when it comes to insuring their company.
Consider the following tips:
· Keep business records updated, duplicated, and organized–and keep them that way. Maintain detailed records of all business transactions, not just for your insurance policies. In the unfortunate circumstance that you should have to file a claim to recover losses due to a business interruption (especially a claim for loss of income or extra expenses incurred due to business interruption), the faster you can get detailed information into the hands of your insurer, the faster you’ll get your claim paid. Finally, make sure you store copies of your records at an alternate location.
· Know the current valuation of your property and its replacement cost. Insurers reimburse for loss in one of two ways: replacement cost valuation, which is the cost to replace property at current market value, or depreciated settlement, which is the cost to replace property minus depreciation. When available, you should choose a policy that reimburses by replacement cost value.
· Be aware of any policy waiting period that applies to business income loss. Any losses incurred during the waiting period will not be covered. Many businesses suffer their greatest income loss and expenses during the first hours and days following a disaster. Instead of a waiting period, consider a policy with a known dollar deductible. You won’ t be covered for the first losses up to the stated dollar amount, but you will be covered for any loss over the deductible.
· Look for a policy with an extended period of indemnity following a business income loss. Some policies only cover losses incurred up to the point that you can reopen your doors. Without an extended period of indemnity clause of say 60 or 90 days, you cannot make claims for losses you continue to incur even after reopening.
· Know what coverages your policy doesn’t include. Review the exclusions and limitations of your policy and add in what you feel is necessary. Frequent exclusions in these types of policies include the loss of cash or securities, losses resulting from employee dishonesty, boiler explosion, and forgery. Read your policy closely, and talk with your insurance agent to ensure you have the necessary coverage for your business.
· Know under what circumstances your business interruption insurance is applicable. Business interruption insurance is designed to cover the loss of income incurred if normal business operations are disrupted or halted by damage to property. Businesses most affected by this kind of loss include manufacturing, wholesale, and retail stores.
Basic business interruption insurance doesn’t cover additional expenses, losses beyond actual loss of income that you may incur. For example, if your office burns to ground, you may need to rent substitute space (perhaps at a greater cost), buy or rent computer & other business equipment, install phone lines, set up security measures, etc. These kinds of expenses generally fall under extra expense insurance.
· Understand how your co-insurance clause works. Co-insurance clauses can lead to penalties if you are not adequately insured at the time of a loss. Suppose you own a building that is valued at $1 million. If you have a co-insurance value of 80%, that means you must insure the building for at least 80% of its value, or $800,000, in order to collect on any loss in full. If you only insure the building for $400,000 — half of the required co-insurance amount – then you can only collect on half of any loss. So if you had a loss of $10,000, and had only insured the building for $400,000, then you could only collect $5000–half of the total loss amount.
If you cannot get the clause waived by your insurer, make certain that you have bought an adequate amount of insurance to cover the value of your property. That way, you will not experience any co-insurance penalties at the time of a loss.