Key Considerations in Purchasing Insurance for the Small Business Owner

August 15, 2010       Leave a Comment
By: Brandon Sutkowi

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The insurance needs facing small business owners are typically addressed by a Business Owners Policy (BOP). Since many small to medium-sized businesses have similar and relatively uncomplicated insurance needs, insurance companies have designed the BOP policy to provide a package of property and liability coverages in one simple product.

Although the BOP product adequately addresses the small business owners? needs, there still are a handful of issues that need consideration.


Property Insurance
Valuation of Property: Generally, BOP's insure property (your building) on a replacement cost basis.

It is critical to ensure that your building is properly valued, and based on current replacement costs. You should investigate the current replacement cost when selecting your building limit.

Co-insurance Clauses Co-insurance clauses require policyholders to maintain insurance coverage generally equal to at least 80 percent of the property's actual replacement cost. Co-insurance clauses create penalties if you are not insured to an adequate value at the time of a loss.

Most policies are subject to co-insurance. This clause can be waived if the amount of coverage you are purchasing is sufficient, as determined by your insurance company.

Business Interruption Insurance
If your business' physical location is critical to your ability to produce revenue, then business interruption insurance is imperative. Business interruption insurance is designed to cover the loss of income resulting from a disruption of your day-to-day operations caused by damage to your property.

Extra Expense Insurance
Another important consideration regarding business interruption are the additional expenses--those beyond actual loss of income. In order to maintain operations and service your customers, you might incur expenses of renting temporary premises or equipment.

In a standard BOP, Business Income and Extra Expense coverage applies to actual loss sustained during the period of restoration, but for not longer than twelve consecutive months after the date of physical loss.

Extended Period of Indemnity
BOP policies cover losses incurred only up to the point that you can reopen your doors for business. Just because a business opens again does not mean revenues will immediately return to prior levels. Some policies may provide an additional 30 days of business income coverage after restoration. Business owners should consider endorsements or other policies to provide coverage for these situations.

Civil Authority
In some situations, small retailers can suffer business income losses stemming from acts of civil authorities. Damage to nearby properties can cause civil authorities to restrict access to a given area, thus barring you and your customers. Many BOPs provide three weeks of business income and extra expense coverage when access is prohibited by action of civil authorities.

Hired & Non-Owned Auto
If your business owns one or more vehicles that your employees use to make deliveries, sales calls or run errands, then you need commercial automobile insurance. Even if your business does not own any vehicles, you still may have exposure from the use of employees' personal autos during the course and scope of their employment.

Hired and Non-Owned auto coverage should be included on your commercial auto policy to protect your company's interests should a loss occur while your employee uses their own vehicle on company business. If not included in your BOP policy, the solution is to use the "Employees as Insureds Endorsement" to provide coverage for employees using their own autos for your business.

Have the right Agent.
Many small business owners make the mistake of placing their commercial insurance with the same agent they purchase their personal home/auto insurance from. Two potential problems are: 1) the personal lines agent may not have the expertise or experience necessary to address each of the previously discussed exposures, and 2) the personal lines agent may not have access to multiple BOP carriers to obtain the best coverage at the best price.

Disclaimer: The brevity of this article prevents comprehensive consideration of all issues. The information contained herein should not be considered as insurance advice; such is expressly disclaimed. For specific matters, consult with your insurance agent.

Sidebar: 4 Key Areas to Consider:

1. Determine the replacement cost of your building and select a value that coincides with this estimate.

2. Remember the black-out of 2003? Consider some form of Business Interruption and Extra Expense Insurance.

3. Make sure you are covered if your employees use their own vehicles in the course of your business.

4. The agent who provides your homeowners insurance may not be the best choice for your business insurance. Check for their experience, expertise and market access.

Brandon Sutkowi, Personal Lines Manager
Vice President
Meadowbrook Insurance Agency
I invite your questions and feedback

Questions? Click Here to E-Mail Brandon Sutkowi

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Brandon Sutkowi
Brandon Sutkowi is a Personal Lines Manager for Meadowbrook Insurance Agency More from Brandon Sutkowi

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