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Management Trends

It's Time to Fine Tune Your Business Insurance

by Provided by Sentry Insurance

May-June, 2006
As a business owner, you can’t afford to overlook the need to make sure your insurance coverage grows along with your business. Most small-business owners realize it’s vital to have adequate business insurance in place when they first get started in business. The trick is to remember to grow your coverage to match your growing assets and revenues.

As a general rule, businesses and individuals should review their insurance annually to make sure that coverage limits still fit the risks.

Small companies can get adequate coverage for a wide variety of possible losses through a standard business owners policy. This usually includes insurance for fire and theft, general liability against customer injuries while on the premises, business-interruption insurance, computer coverage, and unintended libel or slander. When any of these aspects of your business change, such as the addition of equipment or an increase in sales, you should take a look at the actual dollar coverage you have.

This is a good place to start, but there are other risks you might need to cover.

You may want to insure the health and welfare of your employees. Other types of insurance policies to review are workers’ compensation, disability, director and officer coverage, errors and omissions, and liability. If you’re not familiar with these policies, have your legal advisor explain what sort of lawsuits can arise in these areas.

Another important area to cover is “key person” insurance. Your company may be dependent on one or two key persons coming to work each day. These could be employees or partners who play a crucial role in your business and whose loss could be devastating to your operation. Look into insuring against the risk of losing these key players.

Insurance also can help fund a common type of business continuation plan called a buy-sell agreement. A buy-sell agreement is a contract between at least two parties that defines how a business owner will sell his or her interest in the business. It facilitates the sale or transfer of business ownership to the remaining co-owners upon the death, disability, or retirement of an owner.

You also may want to review your personal life insurance policies for estate planning purposes, including assessing appropriate amounts to cover care for dependent children, college education, maintaining your spouse’s standard of living, and spousal retirement income.

To ensure that you have the correct coverage throughout the course of your policy, it’s wise to select an insurance carrier or agent that will meet with you as needed to review your changing needs. Before you meet, it will help to prepare up-to-date figures of your business assets, liabilities, and other financial and operational details of your business, such as

  • gross revenue
  • number of employees
  • types of clients
  • type of work done

For most business owners, dealing with insurance is not a daily activity. It takes time to learn insurance language and policy provisions. Choose an insurance specialist who can explain, in language you can understand, how each limit affects your coverage.

You know your business better than anyone. Let your insurer know about any changes that could affect your coverage.

Surviving Business Income Loss
Physical property losses can have both direct and indirect effects. Your property insurance helps you recover the financial loss you suffer as a result of direct damage to your physical property. However, the indirect cost of the event—particularly lost revenues—may greatly exceed the physical loss to property, but is likely not covered in your property policy.

Business income coverage is a crucial adjunct coverage component for business owners. As a supplement to your property insurance policy, business income coverage will replace lost earnings after your business has been partially—or completely—disabled by a covered loss.

If you experience a setback to such a degree that you must shut down for a significant period of time, could you meet your payroll without new business income? Would you lose key employees? Could you continue to pay your fixed expenses, such as taxes, rent, mortgages, or other loans? Business income insurance covers not only the net profits lost by the interruption of operations, but also continuing normal operating expenses, including payroll.

On average, it takes four to six months following a direct damage loss for a retail store to resume operation. Manufacturers take even longer. Could your business survive if it was forced to close for four, six, or twelve months?

A substantial number of businesses that suffer serious losses never resume operations, despite adequate direct damage coverage on the building and contents. Many do not survive because they lacked foresight to prepare for the consequences of an indirect loss of business income.

Your business doesn’t have to be one of them.

Insuring Your Employment Practices
As if running a business is not complicated enough, today your company faces additional risks simply because of your role as an employer.

Whenever you hire, fire, pay, or promote someone (inherently choosing to not hire, pay, or promote someone else) your decisions could be the subject of legal action. Despite your best efforts to make fair choices, you can still face potentially costly and damaging lawsuits—even if the claim is groundless or fraudulent.

With employment-related practices lawsuits on a steady rise during the past several years, Employment Practices Liability Insurance (EPLI) has become an essential piece to include in your business insurance portfolio.

EPLI protects against claims made against your business by employees, former employees, or potential employees. Coverage is provided for legal defense and damages awarded as the result of a suit brought for covered injuries. This includes punitive damages (where insurable by law).

Covered circumstances typically include

  • Wrongful termination
  • Work-related harassment
  • Employment-related libel, slander, invasion of privacy, defamation, or humiliation
  • Demotion or failure to promote
  • Negative evaluation, reassignment, or discipline
  • Wrongful refusal to employ
  • Constructive termination
  • Wrongful denial of training
  • Wrongful deprivation of career opportunity
  • Negligent hiring or supervision which results in a covered offense
  • Retaliatory action against an employee
  • Coercion of an employee to commit an unlawful act within the scope of that person’s employment
  • Other work-related verbal, physical, mental, or emotional abuse arising from discrimination

(Please note that offenses may vary by state law.)

Employment Practices Liability Insurance, when combined with a proactive employee practices program, is an effective approach to reducing employee claims.

Sentry Insurance is an endorsed association partner of FSEA. It specifically focuses on business insurance for the graphic arts/printing industries. Sentry has already helped several FSEA members with their business insurance in the last three years. For more information, contact Bev Laska at (800) 624-8369 ext. 7272 or e-mail Bev.Laska@sentry.com.