There are no perfect business insurance programs. Oh, sure, some are better than others, but none are perfect.
On average, when I review a business insurance plan, I find more than 20 mistakes. Some are piddly things. Some have me contemplating violence against the insurance agent.
Here is a list of some of the issues I see, and frankly, they are easy for you to check.
Missing Insureds and Entities
At the top of every insurance policy is the named insured. All your legal entities should be listed. Sometimes it's the name of a sole proprietor. You may have a separate operating company, an LLC that owns your real estate, maybe a separated company that employs your workers. In any event, all entities should be insured by all your insurance policies.
List all your business entities and hand the list to your insurance agent. Have him confirm that they are all listed.
Missing Locations
Property insurance policies list the specific locations insured. Commercial general liability policies also schedule covered locations. Regularly review with your agent the locations included in your policies. Don't forget vacant land you own.
Coverage Limits Too Low
In thirty years I have rarely seen a policy with too much coverage. In most claims I see, the insured wishes they had more limits of insurance. This is another place your relationship with your agent can help you. Review each location and the amount of property insurance you're buying. Build a spreadsheet that shows each location, the amount of building coverage you have, business personal property (AKA contents), business income, and other special limits of coverage. Send the spreadsheet to your agent.
Not Enough Business Income Insurance
Building insurance pays for damage to your building. Contents coverage pays for lost personal property. Business income insurance pays for the income you lose while your building is being rebuilt.
Allow me to tell a story that explains business income insurance... Pretend you own a goose (a building). Your goose lays golden eggs (cash flow). If your goose is run over by a truck, it's going to take you nine months to get a new goose (get back into operation). You have insurance that will pay for the cost of the new goose (property insurance), but what about the value of the eggs you won't get in the nine months you're without a goose?
Business income coverage pays the value of the eggs while you're waiting for your new goose. Review how much business income coverage you have. Buy more.
Low Deductibles
Stuff happens. You should take care of the little stuff. Let your insurance be for the big stuff. Consider a $5,000 or $10,000 property deductible. You'll save premium dollars too.
Coinsurance on Property Insurance
Whole articles are written on coinsurance. (Here's one I wrote). Here's the easy version: coinsurance is always a bad thing for the insurance buyer. Ask your agent if you have any coinsurance penalties in your policies. Ask her why.
Coinsurance is like a wart on your chin. You can live with it, but it's best to get it removed.
No Umbrella Liability
Umbrella liability insurance provides an added layer of liability coverage over your auto insurance, your general liability, and a part of your workers' compensation policy called employer's liability. Almost every business should have an umbrella policy.
It's catastrophic coverage when someone sues you for bodily injury and property damage - a car accident caused by an employee kills several people, for example. The premiums are usually low, relative to your overall insurance costs. Inexpensive coverage for accidents that can wipe out your business.
No Employment Practices Insurance
Wrongful termination, employment discrimination, sexual harassment. All these are lawsuits brought by employees (or potential employees) against their employer.
Employment practices liability insurance was quite expensive fifteen years ago. Premiums have moderated and coverage has improved. Get a quote and judge the value of the protection in your own company.
Bone-Headed Exclusions
Every insurance policy excludes something. What are the exclusions in your policies? Look at your insurance contract. Find the section titled "exclusions." Read each one. Turn to the end of your policy. Review the endorsements. Some will remove coverage for certain events and situations. Ask your agent for clarification. If an exclusion removes coverage that seems important, push back for an explanation.
Scott Simmonds, CPCU, ARM, CMC, has provided insurance advice and counsel to hundreds of companies, large and small, throughout the U.S., and his insurance work has involved companies in a wide range of industries. Scott's writing and comments have appeared in the Wall Street Journal, Forbes, Fortune, Money, Inc. Magazine, the New York Times, Investors Business Daily, Kiplinger's, and the Los Angeles Times, among other publications. His Web site is www.scottsimmonds.com; his blog is http://scottsimmondsinsurance.blogspot.com.
