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MP-08
Insurance SCORE Chapter 570 |
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An Insurance Checklist |
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Insurance regulations may vary from state to state and coverages are subject to change. We recommend checking
with a qualified agent in your area before deciding which coverages
your business may require |
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Essential Coverage Four
kinds of insurance are essential: fire insurance, liability insurance,
automobile insurance, and workers’ compensation insurance. Fire Insurance 1.
You can add other perils—such as windstorm, hail, smoke, explosion,
vandalism, and malicious mischief—to your basic fire insurance at a
relatively small additional cost. 2.
If you need comprehensive coverage, your best buy may be one of the all-risk
contracts that offer the broadest available protection for the money. 3.
The insurance company may indemnify you—that is, compensate you for
your losses—in any one of several ways: (1) It may pay actual cash
value of the property at the time of loss. (2) It may repair or replace the
property with material of like kind and quality. (3) It may take all the property
at the agreed or appraised value and reimburse you for your loss. 4. You can insure property you don’t own. You must
have an insurable interest—a financial interest—in the property
when a loss occurs but not necessarily at the time the insurance contract is
made. For instance, a repair shop or dry-cleaning plant may carry insurance
on customers’ property in the shop, or you may hold a mortgage on a
building and insure the building although you don’t own it. 6. Even if you have several policies on your property, you
can still collect only the amount of your actual cash loss. All the insurers
share the payment proportionately. 7. Special protection other than the standard fire insurance
policy is needed to cover the loss by fire of accounts, bills, currency,
deeds, evidence of debt, and money and securities. 8. If an insured building is vacant or unoccupied for more
than 60 consecutive days, coverage is suspended unless you have a special
endorsement to your policy canceling this provision. 9. If, either before or after a loss, you conceal or
misrepresent to the insurer any material fact or circumstance concerning your
insurance or the interest of the insured, the policy may be voided. 10. If you increase the hazard of fire, the insurance
company may suspend your coverage even for losses not originating from the
increased hazard. (An example of such a hazard might be renting part of your
building to a dry-cleaning plant.) 11. After a loss, you must use all reasonable means to
protect the property from further loss or run the risk of having your
coverage canceled. 12. To recover your loss, you must furnish within 60 days
(unless an extension is granted by the insurance company) a complete
inventory of the damaged, destroyed, and undamaged property showing in detail
quantities, costs, actual cash value, and amount of loss claimed. 13. If you and the insurer disagree on the amount of loss,
the question may be resolved through special appraisal procedures provided
for in the fire-insurance policy. 14. You may cancel your policy without notice at any time
and get part of the premium returned. The insurance company also may cancel
at any time with a 5-day written notice to you. 15. By accepting a coinsurance clause in your policy, you
get a substantial reduction in premiums. A coinsurance clause states that you
must carry insurance equal to 80 or 90 percent of the value of the insured
property. If you carry less than this, you cannot collect the full amount of
your loss, even if the loss is small. What percent of your loss you can
collect will depend on what percent of the full value of the property you
have insured it for? 16. If your loss is caused by someone else’s
negligence, the insurer has the right to sue this negligent third party for
the amount it has paid you under the policy. This is known as the
insurer’s right of subrogation. However, the insurer will usually waive
this right upon request. For example, if you have leased your insured
building to someone and have waived your right to recover from the tenant for
any insured damages to your property, you should have your agent request the
insurer to waive the subrogation clause in the fire policy on your leased
building. 17.
A building under construction can be insured for fire, lightning, extended
coverage, vandalism, and malicious mischief. Liability Insurance 1. Legal liability limits of $1 million are no longer
considered high or unreasonable even for a small business. 2. Most liability policies require you to notify the
insurer immediately after an incident on your property that might cause a
future claim. This holds true no matter how unimportant the incident may seem
at the time it happens. 3. Most liability policies, in addition to bodily injuries,
may now cover personal injuries (libel, slander, and so on) if these are
specifically insured. 6. Even if the suit against you is false or fraudulent, the
liability insurer pays court costs, legal fees, and interest on judgments in
addition to the liability judgments themselves. 7. You can be liable for the acts of others under contracts
you have signed with them. This liability is insurable. Automobile Insurance 1. When an employee or a subcontractor uses a car on your
behalf, you can be legally liable even though you don’t own the car or
truck. 3. You can often get deductibles of almost any
amount—say $250 or $500—and thereby reduce your premiums. 4. Automobile medical-payments insurance pays for medical
claims, including your own, arising from automobile accidents regardless of
the question of negligence. 5. In most States, you must carry liability insurance or be
prepared to provide other proof (surety bond) of financial responsibility
when you are involved in an accident. 7. Personal property stored in an automobile and not
attached to it (for example, merchandise being delivered) is not covered
under an automobile policy. Worker’s Compensation 1. Federal and common law requires that an employer: (1) Provide employees a safe place to work, (2) hire competent fellow employees, (3) Provide safe tools, and (4) Warn employees of an existing danger. 2. If an employer fails to provide the above, the employer
is liable for damage suits brought by an employee and possible fines or
prosecution. 3. State law determines the level or type of benefits
payable under workers’ compensation policies. 4. Not all employees are covered by workers’
compensation laws. The exceptions are determined by State law and therefore
vary from State to State. 5. In nearly all States, you are now legally required to
cover your workers under workers’ compensation. 6. You can save money on workers’ compensation
insurance by seeing that your employees are properly classified. 7. Rates for workers’ compensation insurance vary
from 0.1 percent of the payroll for “safe” occupations to about
25 percent or more of the payroll for very hazardous occupations. 8. Most employers in most States can reduce their
workers’ compensation premium cost by reducing their accident rates
below the average. They do this by using safety and loss-prevention measures.
Desirable Coverage Some types of insurance coverage, while not absolutely
essential, will add greatly to the security of your business. These coverages include business-interruption insurance, crime
insurance, glass insurance, and rent insurance. Business Interruption Insurance 1. You can purchase insurance to cover fixed expenses that
would continue if a fire shut down your business—such as salaries to
key employees, taxes, interest, depreciation, and utilities—as well as
the profits you would lose. 2. Under properly written contingent business-interruption
insurance, you can also collect if fire or other peril closes down the
business of a supplier or customer and this interrupts your business. 3. The business-interruption policy provides payments for
amounts you spend to hasten the reopening of your business after a fire or
other insured peril. 4. You can get coverage for the extra expenses you suffer
if an insured peril, while not actually closing your business down, seriously
disrupts it. 5. When the policy is properly endorsed, you can get
business-interruption insurance to indemnify you if your operations are
suspended because of failure or interruption of the supply of power, light,
heat, gas, or water furnished by a public utility company. Crime Insurance 1. Burglary insurance excludes such property as accounts,
fur articles in a showcase window, and manuscripts. 2. Coverage is granted under burglary insurance only if
there are visible marks of the burglar’s forced entry. 3. Burglary insurance can be written to cover, in addition
to money in a safe, inventoried merchandise and damage incurred in the course
of a burglary. 4. Robbery insurance protects you from loss of property,
money, and securities by force, trickery, or threat of violence on or off
your premises. |
5. A comprehensive crime policy written just for small
business owners is available. In addition to burglary and robbery, it covers
other types of loss by theft, destruction, and disappearance of money and
securities. It also covers thefts by your employees. 6. If you are in a high-risk area and cannot get insurance
through normal channels without paying excessive rates, you may be able to
get help through the federal crime insurance plan. Your agent or State
Insurance Commissioner can tell you where to get information about these
plans. Glass Insurance 1. You can purchase a special glass-insurance policy that
covers all risk to plate-glass windows, glass signs, motion-picture screens,
glass brick, glass doors, showcases, counter-tops, and insulated glass
panels. 2. The glass-insurance policy covers not only the glass
itself, but also its lettering and ornamentation, if these are specifically
insured and the costs of temporary plates or boarding up when necessary.3.
After the glass has been replaced, full coverage is continued without any
additional premium for the period covered. Rent Insurance 1. You can buy rent insurance that will pay your rent if
the property you lease becomes unusable because of fire or other insured
perils and your lease calls for continued payments in such a situation. 2. If you own property and lease it to others, you can
insure against loss if the lease is canceled because of fire and you have to
rent the property again at a reduced rental. Employee Benefit Coverage Insurance coverage that can be used to provide employee
benefits includes group life insurance, group health insurance, disability
insurance, and retirement income. Key-man insurance protects the company against financial
loss caused by the death of a valuable employee or partner. Group Life
Insurance 1. If you pay group-insurance premiums and cover all
employees up to $50,000, the cost to you is deductible for Federal income tax
purposes, and yet the value of the benefit is not taxable income to your
employees. 2. Most insurers will provide group coverage at low rates
even if there are 10 or fewer employees in your group. 3. If the employees pay part of the cost of the group
insurance, State laws require that 75 percent of them must elect coverage for
the plan to qualify as group insurance. 4. Group plans permit an employee leaving the company to
convert group-insurance coverage to a private plan, at the rate for his/her
age, without a medical exam, within 30 days after leaving the job. Group Health Insurance 1. Group health insurance costs much less and provides more
generous benefits for the worker than individual contracts would. 2. If you pay the entire cost, individual employees cannot
be dropped from a group plan unless the entire group policy is canceled. 3. Generous programs of employee benefits, such as group
health insurance, tend to reduce labor turnover. Disability Insurance 1. Workers’ compensation insurance pays an employee
only for time lost because of work injuries and work-related sickness—not
for time lost because of disabilities incurred off the job. But you can
purchase, at a low premium, insurance to replace the lost income of workers
who suffer short-term or long-term disability not related to work. 2. You can get coverage that provides employees with an
income for life in case of permanent disability resulting from work-related
sickness or accident. Retirement Income 1. If you are self-employed, you can get an income tax
deduction for funds used for retirement for you and your employees through
plans of insurance or annuities approved for use under the Employees
Retirement Income Security Act of 1974 (ERISA). 2. Annuity contracts may provide for variable payments in
the hope of giving the annuitants some protection against the effects of
inflation. Whether fixed or variable, an annuity can provide retirement
income that is guaranteed for life. Key-Man Insurance 1. One of the most serious setbacks that can come to a
small company is the loss of a key employee. But your key employee can be
insured with life insurance and disability insurance owned by and payable to
your company. 2. Proceeds of a key-man policy are not subject to income
tax, but premiums are not a deductible business expense. 3. The cash value of key-man insurance which accumulates as
an asset of the business can be borrowed against and the interest and
dividends are not subject to income tax as long as the policy remains in
force. Organizing Your Insurance Program A sound insurance protection plan is just as important to
the success of your business as good financing, marketing, personnel
management, or any other business function. And like the other functions,
good risk and insurance management is not achieved by accident, but by
organization and planning. A lifetime of work and dreams can be lost in a few
minutes if your insurance program does not include certain elements. To make
sure that you are covered, you should take action in four distinct ways: 1. Recognize the various ways you
can suffer loss. 3. Organize your
insurance-management program. 4. Get professional advice. Recognize
the risks. The first step toward good protection is to recognize the risks
you face and make up your mind to do something about them. Wishful thinking
or and it-can’t-happen-to-me attitude won’t lessen or remove the
possibility that a ruinous misfortune may strike your business. Some businesses will need coverage not mentioned in the
checklist. For example, if you use costly professional tools or equipment in
your business, you may need special insurance covering loss or damage to the
equipment and/or business interruption resulting from not being able to use
the equipment. Study insurance costs. Before you purchase insurance, investigate the methods by
which you can reduce the costs of your coverage. Be sure to cover the
following points: 1. Decide what perils to insure against and how much loss
you might suffer from each. 2. Cover your largest loss exposure first. 3. Use as high a deductible as you can afford. 4. Avoid duplication in insurance. 5. Buy in as large a unit as possible. Many of the
“package policies” are very suitable for the types of small
businesses they are designed to serve, and often they are the only way a
small business can get really adequate protection. 6. Review your insurance program periodically to make sure
that your coverage is adequate and your premiums are as low as possible
consistent with sound protection. Have a plan. To manage your insurance program for good coverage at the
lowest possible cost, you will need a definite plan that under girds the
objectives of your business. Here are some suggestions for good risk and
insurance management: 1. Write down a clear statement of what you expect
insurance to do for your firm. 2. Select only one agent to handle your insurance. Having
more than one may spread and weaken responsibility. 3. If an employee or partner is going to be responsible for
your insurance program, be sure he/she understands the responsibility. 4. Do everything possible to prevent losses and to keep
those that do occur as low as possible. 5. Don’t withhold from your insurance agent important
information about your business and its exposure to loss. Treat your agent as
a professional helper. 7. Keep complete records of your insurance policies,
premiums paid, losses, and loss recoveries. This information will help you
get better coverage at lower costs in the future. 8. Have your property appraised periodically by independent
appraisers. This will keep you informed of what your exposures are, and you
will be better able to prove what your actual losses are if any occur. Get professional advice about your insurance. Insurance is
a complex and detailed subject. By Mark R. Greene Distinguished Professor of Insurance
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