Business decision makers often wonder what their business insurance actually covers. Even the annual business insurance review will leave a sense that something is missing in the insurance portfolio.
The worst scenario is when a loss occurs, and the lack of coverage is discovered. To avoid surprises, every business owner must manage the policies actively and learn everything possible about the nuances of insurance. Experienced insurance agents can provide comparison profiles to insure that an informed choice between insurance companies is made.
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Business Owner’s Policy
Small to medium-sized businesses can save a great deal on the annual insurance premium by purchasing a business owner’s policy, or BOP, which has been compared to homeowner’s insurance. Property, business interruption, liability and crime coverage are included in these types of policies. Vehicle insurance for rented or borrowed cars is also included.
Certain types of businesses will not be sufficiently covered against loss under a basic business owner’s policy. Equipment-intensive businesses will find that a business owner’s policy does not provide sufficient replacement coverage for specialty equipment that is essential. Other types of businesses, such as consulting and other professional practices, will find that a BOP may lack errors and omissions insurance.
Insurance Coverage Components
When the business needs tailored coverage, business insurance policies can contain specialized coverage that will prevent impact from loss that is incurred throughout the course of conducting business. Every insurance company offers different combinations of coverage and calculates the cost of risk differently, which results in various annual premiums. The cost of insurance must be compared against the coverage offered. Cheap insurance is not the same as affordable insurance.
- General insurance – Property coverage is the primary coverage under the general insurance component. Sufficient coverage must be carried to rebuild the buildings if a significant loss occurs. The life of the business depends on the payout from the insurance company to recover from loss.
- Commercial liability – Most policies offer a certain level of liability insurance that will pay for loss to the property of others. Liability coverage will cover the costs of litigation up to the limit set on the policy. Sufficient coverage must be purchased to avoid having to pay more than the policy will cover. One way to reduce the cost of the policy is to carry an umbrella liability policy, which carries a lower premium.
- Fidelity – Proprietary information entrusted to employees must be protected at all times. When incidents occur that result in financial loss because of theft or embezzlement, fidelity insurance will cover the loss. Some business owners do not see the need for this type of insurance, but companies are closing their doors because of significant losses from embezzlement activities. Fidelity insurance is also known as bonding, which is essential for businesses that work directly with the public.
- Business interruption – When devastating loss occurs, the employees must be paid throughout the rebuilding efforts. Temporary premises and rented equipment must be covered to sustain the business until normal operations can be restored. Only one out of five businesses will survive a significant loss because sufficient funds are not available to fund the continuity plan, which usually does not exist. Companies that wish to survive catastrophic loss must write a detailed plan that will reveal how to use the funds provided by the insurance company following a loss.
Coverage Not Included
Certain types of insurance coverage are required for any business that employees more than one full-time employee. These types of insurance are not included in the business insurance policy. Comparison activities for business insurance will not include the following:
- Automobile insurance – Businesses that own vehicles must have automobile insurance according to the correct “symbol” as defined by the insurance industry. As the insurance needs of the business change, the auto insurance must be kept up to date to prevent uninsured losses. Very expensive and specialized equipment attached to the vehicles must be covered with insurance riders that will pay to replace the equipment that is essential to completing work. The cost of this insurance can be reduced by hiring employees with clean driving records.
- Health insurance – Separate health insurance policies are purchased to cover the healthcare needs of the employees and their families. Health insurers are separate from business insurance companies. Larger companies are offered lower health insurance rates because of the number of people added to the insurance pools.
- Life insurance – Very few businesses survive the loss of an owner or principal. Life insurance that names the business as the beneficiary is prudent to provide money to fund a transition period following the death of an owner. Life insurance companies offer many different policy types that can be used to reduce the impact of the loss of key players.
- Worker’s compensation – Every state requires that companies carry sufficient levels of insurance to pay for any injury that occurs while conducting business. This coverage extends to business activities that are performed by employees even when they are not on the business premises. The premiums are set by each state according to the type of work and number of employees.
- Unemployment insurance – Businesses are required to carry unemployment insurance on every employee, and this coverage is required and offered by each state. The state determines the rules concerning payouts including the reasons, the amounts and the length of time that benefits are received.
Every year, many businesses cease to exist because of loss that was not covered by sufficient insurance. Admittedly, insurance is a significant expense that can consume funds that might be considered profit. Employees depend on wise decisions by the business owner to carry sufficient insurance to sustain the life of the business for many years. Comparison efforts must be conducted on a regular basis to adjust the insurance coverage to match the needs of the business. Insurance companies offer many different approaches to insurance that can provide sufficient coverage at affordable rates.
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