A. Business Insurance
“Business Insurance” is a broad name for different coverage available to the business owner to protect against losses and to insure the continuing operation of the business.
What is Business Insurance?
Most people are familiar with insurance for their personal home and automobile. This coverage protects you financially in case of an accident or disaster to your home or car. We are familiar with these types of insurance because it is natural for most people to realize that they would be unable to replace their home tomorrow if there was a fire or to replace their automobile if there was an accident.
The same principle applies to business insurance. The principle is one of risk. There are risks that, while they may never occur, are so destructive that it makes sense to plan ahead and manage the risk. In our personal lives these risks are often more easily foreseeable.
For our businesses, however, we often do not consider risk or believe that the risks cannot be managed and so we turn a blind eye hoping that nothing “bad” happens. Some business owners I have worked with believe that since their business is profitable with a positive cash flow they can take care of the disaster when it happens. They forget that if the business is not operating – there is no cash flow.
Business insurance is nothing more than spreading and managing the risk among many business owners. Insurance companies take in premium payments from many covered businesses, invest those payments, and create a pool of money to pay out to a covered business if that business has a covered loss. Over the last 300 years, insurers have developed mathematical models to determine what chance there is of a risk occurring and, in so doing, what premiums the insurer must charge to stay in business and make a profit. Over that same time, insurers have developed approximately eight to nine general categories of losses that seem to happen with more frequency. The insurers developed particular policies to address those types of losses.
Business insurance is a broad description that encompasses these different types of policies. Because there are so many different types of coverage it is confusing. But, at the very basic level, the concept is the same – the management of risk.
Preparing to Purchase Insurance
Managing the risk your company faces is a constant effort. But, the first step is preparing to purchase insurance. The following is an outline of that process that will prove helpful.
- Learn About Different Types of Coverage
Take time to develop an understanding of the types of coverage available in order to discuss them with your insurance professional. You may not need to know the intricacies of any particular coverage; but, understanding, for example, that property insurance is necessary to protect a business location is a basic concept that goes a long way to making you an informed business owner.
- Analyze Your Business
Analyze your business to make an assessment of what coverage you will need now and make some educated guesses at what your business will need in the future. Sometimes the easiest way to do this is to speak with others in your industry. Prepare a description of your business that you have written out so you can quickly interview different insurance professionals in seeking quotes for coverage.
- Choose an Insurance Professional
Much like an accountant or lawyer, your insurance professional should be someone with whom you plan to develop an ongoing relationship. Choosing an insurance professional and working with that professional is made easier when you have a clear understanding of your business and its direction as well as a general idea of what types of policies are available.
Unlike personal insurance, business insurance is assessable which means the insurance company can audit your books and require additional payments be made even after the fact, ie, after the period of coverage. Further if payment isn’t made the insurance company can have you “black-balled” from receiving coverage from ANY insurance company. Good insurance agents know which companies will audit and which will not. Further, they will know which companies will write bonds and other specialty insurance products since these products are generally only offered to existing clients. Good agents might switch from you from carrier to carrier as your business changes and as premiums are changed by the companies. Therefore, use independent agents who represent various insurance companies and avoid agents that are contractually tied to only one company like State Farm, Nationwide, American Family and Allstate who are called “captive” agents because they are held captive by their insurance companies to only offer their products.
- Review Your Initial Business Insurance Plan Regularly
At the initial purchase, set a calendared date to review your business insurance plan with your insurance professional regularly. Things change in business. Commit yourself to monitor that change and review the need for more or less coverage on a regular and continuing basis.
These four steps are the building blocks to a successful business insurance plan.