The life of an entrepreneur is complex and demanding. It is also very rewarding, for those who endure this process long enough to see the fruits of their labor. Many business owners have said that they spend an overwhelming portion of their day solving problems. Unfortunately, that leaves very little time to leverage the original passion that drove them to start the business. Time constraints force business owners to make swift decisions on urgent issues. There are times when business owners delay addressing areas, such as insurance, because the urgency is not overwhelming. Unfortunately, some business owners have paid a heavy price because they did not get around to dealing with an important issue that was on their to-do list.
Insurance is a subject that may not reside in the front of the mind for many small business owners. However, proper decision making will lead to peace of mind, when adverse situations arise. We can help you avoid the pitfalls that have hurt others in the past, so that you may prosper.
Why You Should Care
You should care because you want to protect your assets—you must protect what you have worked so hard to acquire. It all boils down to protecting what you have. When it comes to commercial customers, the liabilities are larger. There are some citizens who may view your misfortune as a “pay day” for themselves. Ask yourself, if juries tend to lack sympathy for businesses in your area, and be prepared and ready to defend yourself against punitive damages.
Determine if you currently have the level of liability insurance that will protect you when you need it. Understand what part of your business is exposed. Take steps to know if the insurance is appropriate for your specific business.
Determine the Appropriate Dollar Value Coverage
Avoid cookie-cutter policies—one size does not fit all. Just like a driver can be exposed to harsh consequences with minimum auto coverage, a business can be exposed with inappropriate coverage. The exposure is greater for businesses.
James O’Neal of O’Neal Insurance Agency, adds, “Make certain your net worth is covered correctly. If you own a business, a house, vehicles, corporate vehicles, you have net worth! It is not a matter of ‘if,’ but it is a matter of when you will need coverage. In an accident, someone will sue. Make certain your coverage is appropriate for you.”
Understand Your Perception of Risk to Insurers
Credit may not rule everything around you, but it rules many things. Credit does not just affect your borrowing, but the concept is similar to bond ratings and the related risk. Insurers, like financiers, analyze the risk of working with their clients. Keep in mind that a higher credit rating drives lower costs of insurance to the business owner. The idea is one of perceived risk. Therefore, you should avoid having credit issues in order to reduce your premiums. Statistically, safer businesses have more advantages for insurers.
Fully Appreciate the Impact of Your Location
There are many things to weigh when deciding on a location. Study your customer base and figure out where you need to go to provide the best service. Certain areas may have higher crime rates than other areas. Insurance costs will be higher due to crime activity, but your sales may be worth it. Plan ahead to make that determination ahead of time.
Do Not Cut Corners on the Proper Coverage, Especially With Tenants
Consider a Business Owners Policy (BOP) bundle to cover:
- general liability
- the building itself
In the example above, this bundle covers several exposures in one policy. One bundled policy can reduce your premiums, and can give you the convenience of working with only one adjuster in the event of a total loss. To illustrate a liability example, an owner could be at risk if they own a building, and lease the space to a restaurant owner. If the food from that restaurant makes customers ill, the lack of proper coverage for both parties with the tenants (the building owner and the restaurant) could put the assets of both parties at risk.
As far as the covering the building itself, Mr. O’Neal says, “Replacement value and market value are not the same. If your building has a market value of $150,000 today, do you know what it would cost per square foot to replace it? Also, as the building ages, the replacement cost could be higher than you anticipated. It is a sound business practice to conduct annual policy reviews. The reviews will determine the adequate coverage for your business.”
Some owners yield to the temptation to short-change the coverage on their policy. Mr. O’Neal would ask any business owner the following question, “Is saving a couple of dollars a month on your policy really worth sacrificing over thousands of dollars of coverage in the event of a total loss?”
You probably already have your hands full managing your daily processes. If you are like most small business owners, you don’t need the headaches that come from improper insurance coverage. Evaluate your policies, and be certain that you are prepared for anything.