Business INSURANCE POLICIES

HOW MUCH INSURANCE DO I NEED?

When purchasing business insurance it’s important to obtain the right amount. Be sure that your company is neither overinsured nor underinsured. To help you decide the amount of property insurance you need, list all your companys assetsincluding property, equipment and inventory. You can buy property insurance on the basis of the property’s actual value (the replacement cost minus depreciation) or its replacement value (the cost of replacing the item without deducting for depreciation).

An agent and insurance company familiar with the risks typically involved with your type of operation can help you decide on a reasonable amount of property and liability insurance.

HOW CAN I KEEP PREMIUMS DOWN?

1. Shop around. Prices vary from company to company, so it pays to get several quotes. Get the names of insurance companies or brokers who specialize in your type of business. Call several so that you can compare prices and get a feel for the types of services they would provide.

   It’s also important to pick a company that is financially stable. Check the financial health of insurers with rating companies such as A.M. Best and Standard & Poor’s and consult consumer magazines. Your trade association or other group that represents your business may be able to provide recommendations.

2. Choose a higher deductible. Deductibles represent the amount of money you pay before your insurance policy kicks in. The higher the deductible, the less you will pay for the policy. At the same time, be sure you don’t set the deductible so high that it will be a financial burden for you to pay the deductible if you have a loss.
3. Buy a package policy. A package policy, such as a Businessowners Policy (BOP), rather than individual coverages will cost less.
4. Work closely with your agent. The more the agent understands about your overall business and finances, the better he or she will be able to find competitively priced products for you.
5. Ask about specific actions you can take to prevent losses. You may be able to reduce your premium for certain coverages by following your insurer’s specific recommendations. These can include tips on workplace safety, disaster preparation and devices that reduce losses (loss mitigation), such as installing alarms and sprinklers. In addition, there are steps you can take to lower the possibility that one of your employees might file a lawsuit against you for discrimination or sexual harassment, for example.
6. Avoid losses. Remember insurance works a lot like credit. Costs are lower for customers with better claim histories. The more losses you have, the higher your premiums will be, because it suggests that you are not very careful and there will be more losses in the future. If your loss history is bad enough, you may have trouble obtaining insurance at all from a private insurance company.

SHOULD I BUY A PACKAGE POLICY?

Insurers often combine a number of coverages into a package that is sold as a single contract. The advantage of a package policy is that it offers a broad variety of coverages for small businesses at a price that is usually lower than if the same coverages were bought separately. The most common type of package policy is the Businessowners Policy or BOP (see below).

Many insurance companies have their own unique names for the package policies they offer, and the coverages may vary somewhat from company to company. Often, these policies are created specifically for businesses that generally face the same kind and degree of risk. There are, for example, package policies designed especially for restaurants, undertakers, hair stylists, accountants and many other enterprises.

WHAT IS A BUSINESSOWNERS POLICY (BOP)?

A Businessowners Policy (BOP) combines coverage for all major property and liability insurance risks as well as many additional coverages into one package policy suitable for most small businesses. The term BOP specifically refers to insurance policy language developed (and revised as needed) by experts at ISO. ISO provides sample insurance policy language, research and a variety of other products to insurance companies.

A BOP includes business income insurance. This compensates you for the business income you may lose following a disaster. Disasters typically disrupt operations and may cause you to vacate your premises. The BOP also covers the extra expense you may incur if you must operate out of a temporary location.

To cover specific risks associated with your business, you may purchase a variety of additional coverages to add to the basic BOP. For example, the BOP doesn’t cover outdoor signs unless you specifically add coverage and pay an additional premium. If your business relies on electronic commerce, you may want to add coverage for lost income and extra expenses in the event your ability to conduct e-commerce is slowed down or stopped due to a computer virus or hacker.

Only small- to medium-sized businesses that meet certain criteria are eligible for a BOP. Factors insurers consider include the size of the premises, the required limits of liability, the type of business and the extent of offsite activity. Premiums for BOP policies are based on those factors plus business location, financial stability, building construction, and security features and fire hazards.

In discussing small business insurance, we make frequent reference to the coverage provided by the ISO BOP because it is a standardized policy form. Your particular policy may be somewhat different. The coverages, however, will be similar.

A BOP does not include all the coverages you may need. It does not cover professional liability, auto insurance, workers compensation or life, health and disability insurance. You will need separate policies for those.