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Keeping Your Business Insurance Up to Date 

Changes to your business could change your risk profile. Failure to inform your insurer of such changes could result in denial of coverage. 

All too often small business owners renew their business insurance policies without giving much consideration to the adequacy of the coverage. Over time business risk changes with the growth of your business and the old policy may no longer provide the necessary coverage. Perhaps it is time to review your business policy and determine whether additional coverage is required. 

Your insurance agent is the best person with whom to review your existing policy and determine the coverage your business should consider. After all, the agent only knows how your business has changed on the basis of the information you provide. A failure to communicate risk-related changes could cost you dearly if you have to make a claim. Yes, you may want to insure for unique risks associated with your type of business but most small business owners only need adequate coverage. 

Typically your insurance representative should discuss the following: 

Commercial Property InsuranceThis type of insurance covers buildings, inventory, contents, and equipment against fire, windstorm, falling objects, or burglary. Customer or employee assets may also be covered depending on the wording of the policy. 

If you operate a business from your home, it is unlikely your basic house and contents policy will be adequate. In fact a homeowner's policy can sometimes be voided by the operation of a business on the premises. If your business is home based, consider a commercial policy in addition to your homeowner's policy. 

If your business leases premises, you need to know whether your business insurance policy meets the requirements of the lease agreement. 

General Liability Insurance 

This type of insurance generally insures against liability for injury:

•  to persons while on your property

•  to a third party caused by use of your product

•  to persons or property through the acts of an employee on company business offsite (vicarious liability).

In many instances the cost of defending a claim may be covered even if a settlement is not required. 

Business Interruption Insurance 

A fire or other natural disaster can cause a business shutdown that results in lost customers, departing employees, and the reduction of cash flow. Business Interruption Insurance provides funds to offset the lost profits and additional expenses required to get back into production. 

Crime Insurance 

Losses from crime such as credit-card fraud, Internet scams, counterfeit money, employee theft as well as embezzlement and forgery are usually covered by this type of insurance. 

Receivables Insurance 

The collection of receivables generates the cash that keeps your business going. Receivables insurance is not expensive (usually a small fraction of one percent of sales) and protects you against non-payment if a customer:

•  goes into bankruptcy

•  closes

•  changes owners

•  has cash-flow problems

•  is having difficulties because of a downturn in the economy

•  is located overseas and unable to pay because of government intervention

•  refuses to pay because of a protracted dispute. 

Commercial Auto Insurance 

Given the widespread use of automobiles in business, commercial auto insurance is essential to protect your business against the risk of bodily injury or property damage. The policy should include provision for funds to cover repairs or purchase a new vehicle in case of damage or theft, and provide third-party liability should a company employee cause injury to property or person(s). If company vehicles cross an international border, special coverage may be required. 

Critical Illness Insurance 

If the owner-manager is incapacitated through a critical illness, this insurance provides a tax-free lump-sum benefit. 

Partnership Insurance 

Partnership agreements usually contain a mechanism that prevents dissolution of the partnership if a partner dies or becomes insolvent. Partnership insurance provides the funds to satisfy the heir or creditor, thus allowing the partnership to continue in business without interruption. Such insurance can also help offset any tax liabilities arising from death or insolvency. 

Key Person Insurance  

The loss of the contribution of a key employee through death or illness can be devastating to a company. If the business is a family business, key person insurance provides money to meet estate tax obligations without affecting the company. It also provides money to pay company creditors and to find and train a replacement. 

Life Insurance 

If you are a sole proprietor or a partner, your estate will be responsible for any debts incurred by the proprietorship and your portion of those incurred by the partnership. It is advantageous to have insurance sufficient to pay these obligations.  

Coverage, Deductibles and Policy Limits 

What is a significant loss to one organization may be a trivial loss to another. Therefore, choose you coverage, deductibles and policy limits carefully. Do not be penny wise and pound foolish.  

Read the Fine Print 

Most surprises to the insured come when the agent tells them the policy does not cover what is being claimed. Anything not included specifically in the policy or as a rider may not be insured. Read and review the policy with your representative. Although not comprehensive, the following are a few of the areas to check:

•  Make sure all pages explaining riders or other sub sets of data are present within the contract. A completed contract is the only means you have of verifying your claim. Cross-reference the clauses in the main body of the policy to the subsets to ensure that they are correct and that you understand the subset explanations.

•  Make sure the names and addresses of the insured and the insured premises are accurate.

•  Check to ensure all areas to be insured are included.

•  Determine continuity of pages to ensure that all pages are present.

•  Double check that the limits and deductibles are correct.

•  Ensure that the insurance company is properly identified by name.

•  Check the date the policy comes into effect. Nothing could be more devastating then a major disaster occurring only to discover that your premises were not covered because the representative entered the wrong date.

•  Note any compliance issues such as providing serial numbers of insured equipment, notification of new equipment purchases, monthly receivable or inventory listings, or police reports in the event of theft, embezzlement or break-ins.

•  Understand any time frames required for filing claims.

•  Understand any payment schedules and adhere to them. If payments are to be automatically withdrawn from the operating account, check that documentation specifies the payment process. 

Avoid Disappointment 

Make sure your insurance agent has explained how the policy meets your needs. In addition to knowing what it covers, make sure you understand what it does not cover. Ask any question that comes to mind, no matter how absurd it may seem since, unfortunately, the "if a then b" logic that seems to be common sense to you may not be the way the insurer looks at the risk. For instance equipment used offsite and carried in personal or company vehicles may not be covered if stolen. Laptops may not specifically be ensured against theft while transported or in the office (mysterious disappearance). And what about sewer backup, tornados, floods, falling trees, or damage created by vandalism? 

You may have risks or hazards for which no insurance can be purchased such as war, acts of civil disobedience, or damage or injury created during the commission of an illegal act. There are, however, grey areas. For instance, does the policy cover the employee involved in an accident while intoxicated or driving at excessive speeds which results in a criminal charge? 

Make sure you understand what is covered in your property policy. Have the representative explain the meaning of additional coverage provided without cost such as maximums for outdoor signs, fire department surcharges or property in transit. A careful review of additional "free" coverage may allow a business to reduce the coverage initially determined necessary. 

Ask for an explanation of the deductibles for any riders on both the general property insured and special property policies. If riders cover offsite storage, laptops or other expensive portable equipment, for example, does the deductible apply per occurrence?

Determine the specific actions required in making a claim. For instance, do you need to contact police and submit a police report if equipment is stolen?  

The relationship between insurer and insured is one of trust and requires both parties to act in good faith. Insurance contracts are based on the understanding that the insured has the information the insurer requires to draft the policy, calculate the premium and determine the claim value. It is assumed the information given is complete and accurate to the best of the insured's knowledge. Intentionally providing information that is incorrect, misleading or excludes important facts can result in denial of coverage through rejected claims or cancellation of policies.