Forming A Solid Business Insurance Strategy
Small Business Insurance
By Dana J. Coates
The Four Corners of Small Business Insurance
We're going to provide you with some basic but useful information that will help you to look at business insurance and business risks in a new and practical manner. We’ll speak clearly and use some basic but real examples to demonstrate our points.
Imagine with me, that you are in your reading room, sipping from a cup of your favorite hot drink, and you're seated in that wonderfully comfortable armchair of yours. Did you ever think about how solid and how comfortable they built that chair? It didn't happen by chance, someone thought very carefully about how it was going to be used and who was going to use it. That is exactly how a properly structured insurance portfolio is formulated for a business like yours.
If you own or operate a business with less than 500 employees, you're going to benefit by hearing some of the points in this article. Since 1963 we've been helping to craft insurance programs businesses all across the country.
Lets consider the basic risks for which your business needs protection; we'll use four corners to establish the foundation of your business insurance portfolio:
Virtually every form of insurance falls under one of these four foundational points. Some might have you believe that it's more complex than that, it's not. But this suggests that the person formulating your portfolio needs some special skills, knowledge and expertise. It's been our experience that these qualities are best found among a group of insurance people known as Independent Insurance Agents and Brokers. The IIAA (Independent Insurance Agents of America) members are trained in working with a large number of carriers and they represent a broad cross section of business clientele. These factors enable this group of specialists to “think like business people”, not like insurance people.
IIAA insurance people are not captive to just one insurance carrier, or bound to that one carrier's product line. They are obligated to work on your behalf by representing you to many carriers simultaneously. Once they have obtained several options for your consideration, they'll then assist you to select the carrier and options that best fit your insurance needs and budget. Don't get too hung up on the cost, everything is relative, and in insurance today, more than ever before, you get what you pay for.
Speaking of that, have you ever heard those ads on the radio about how some person with a bunch of tickets switched to XYZ Insurance Company and saved $500? Well listen, if a deal sounds too good to be true, it usually is, be cautious.
Focusing back on the four business insurance foundations, the first point suggests you give careful consideration as to your company's legal structure.
Be very cautious about operating your company as an "individual" because any liability you incur through your business venture will be yours for life. Consider alternatives such as a sub-chapter S Corporation, a C Corporation, or in some cases an LLC or perhaps other structures. Seek the thoughts of your trusted business insurance attorney and your trusted business insurance CPA. Be careful about working with “business managers” or “financial planners” as these individuals will tend to lead young businesses toward first buying life insurance related instruments, as opposed to the more initially critical casualty related products. Life insurance instruments tend to be high commission instruments, whereas foundational coverage like property, liability and workers’ comp pay minimal commissions and are more appropriate initial business expenditures.
What ever your legal structure, be sure to maintain a clear separation between yourself as an individual, and your closely held company. Be sure you operate in a formal manner; be cautious when you're loaning money from your company to yourself or from yourself to the company. Be sure it's done in a formal and documented manner. Maintain meeting notes and document everything (within reason).
Be cautious about insuring corporate owned vehicles under a personal auto policy, it can expose the company to uncovered liability and exposes your personal assets to liability of the company. You say, but that commercial auto insurance is twice as much as a personal auto insurance! True, just deal with it. Remember, insuring something the wrong way just to save some money is as risky as not purchasing any coverage at all. Today's insurance carriers won't even skip a beat by refunding premium and walking away from losses, when they discover that the facts are different than originally represented. Don't be the innocent looser in such schemes.
Is he an employee, or is he an independent contractor? Don't kid yourselves; they're all employees after they get hurt. Protect yourself with proper coverage. Purchase Employment Practices Insurance and Workers' Compensation and the other employee related coverage that is required in many states such as NY, HI and others. The line that separates a person from being an independent contractor or an employee is now so thin that unless you are documenting all the key points, you won't have a chance defending yourself if a loss occurs. Proper preparation and proper insurance can truly make the difference between continuing your business, and folding it. And by the way, keep your employees safe by providing proper protection and conducting informative meetings relating to safety and the like.
Contracts, contracts, contracts! I review the full contract as well as the insurance and indemnity clauses in 3 or 4 contracts each day. They are ALL ominous, but almost none of my clients read them before signing them. It's dangerous, everyone assumes that insurance covers contracts into which we enter. WRONG! Be careful and get good advice, starting with your insurance advisor.
Contracts are everywhere, they're a part of our American culture, be careful of what you sign and be sure you understand what you are agreeing to, because today's insurance contracts do NOT provide the coverage they once did.
Business Equipment: WHY INSURE FOR ITS FULL VALUE, the insurance companies never pay out, and don't they always depreciate everything anyway? WRONG, don't get caught up in this old stereotype.
Today's policies are very friendly to the consumer (IF PROPERLY WRITTEN). If you have insured the full value, more than likely you're going to collect virtually every penny (and then some). People get into trouble when they think they are going to outsmart the insurance company by insuring only the amount that might be damaged in a loss. Modern day policies are actually designed to penalize people that use this tactic. Get good advice on this stuff. Remember, your IIAA broker works for you and can be an excellent source for solid and reliable information.
Small businesses are totally dependent on the key people in the company. If one of these players (including you) were to be wiped out on the highway, suffer a heart attack or stroke and either die or become incapacitated for an extended period of time, your business and family would be devastated. Insurance can be arranged to address these emergencies.
My own business partner died only four months after being diagnosed. His widow and children were just fine, for the simple fact that he properly insured this risk before he ever knew there was a problem. We all miss him, but we know that his wife and kids will be OK and that has allowed us to focus on growing the business.
The old saying "knowledge is power" is so true. If each of us could accurately predict the future and then just before tragedy struck, we were able to buy a policy that would provide financial protection, well I guess that would be just about perfect. But life isn't perfect, it's downright challenging at times and it's for those times, specifically, that we have insurance.
I'm proud of my profession and I love my job. Some people think insurance people are not professional – I suppose that non-professionals exist in every industry, even yours. But in my experience, the majority of us really do strive to be totally professional and to place your needs at the forefront of everything that we do in our daily business lives.
Carefully select your insurance representative. Don't base your decision entirely on the bottom line cost or you may miss out on other valuable points of difference. When the loss occurs, the last thing you'll be thinking about is how much you saved in premium dollars. I hope I'm there with you on that day to present the full settlement payment to you personally.