Just being in business is risky. Beyond the most important risk - whether people will buy enough of your product or service to allow you to make enough money and grow - are a number of risks that could send any entrepreneur searching for a dark hole to hide in.
A fire could destroy your inventory, office equipment, records and building. A flood could cause thousands of dollars' worth of damage. Your business could be vandalized or robbed. A customer could sue you for an injury he or she suffered while on your property. A disgruntled employee could sabotage your computer system. You could be the target of an extortionist or a terrorist. The list of potential catastrophes businesses face is virtually endless.
When dealing with risk, you have three reasonable choices: eliminate it, accept it or shift the responsibility for it. Your other option is to pretend it could never happen to you. Anyone who has dealt with a business-related loss would be quick to explain the foolhardiness of this last approach.
In most cases, when you can't completely eliminate a risk, you'll use a combination of accepting and shifting to manage it. In insurance language, that's known as the deductible. Typically, the higher the deductible, the lower your premium. It sounds like a numbers game, and it is - but it's a very serious one that needs careful consideration.
In this quick guide, we take a look at business insurance to help you determine what you need, what you already have, and what could happen if you're not careful.
AGENT ASSESSMENT
Not even the best agent is appropriate for every client. To find an agent who's right for you, ask for recommendations from people who have businesses like yours. You can also check with your industry's state and national trade associations for a referral or contact the Independent Insurance Agents of America. (See "Resources" on page 24.)
An agent can be a valuable asset in managing and growing your business. Bill Tallent Sr., a Sir Speedy Printing franchisee in Brentwood, Tennessee, has worked closely with his agent to build a customized insurance package. "He told us what coverage was necessary, but just as important, what coverage wasn't," Tallent says. "He's taught us when to call and when not to, when to file claims and when not to file claims, and how we can lower our rates."
Here are some questions to ask yourself when selecting an agent:
* Is the agent familiar with your industry? To help you determine the most appropriate coverage, an agent needs to understand how your business operates and the various risks you face. He or she also needs to know about any association-sponsored or industry-specific packages that might be available.
* Does the agent have access to the insurance carriers that offer the products you need? You need an agent who stays on top of industry changes and is always searching for new programs.
* How innovative is the agent? Look for an agent who shows creativity and innovation in responding to changes in the industry and within your operation.
* Will the agent help you prepare a bid and then negotiate with insurance companies on your behalf? Bidding and negotiating are two key elements of smart insurance shopping, and a good agent will see this as an opportunity to prove his or her skills and knowledge.
* Has the agent reviewed your contractual agreements? To completely understand your liabilities, the agent should review contracts such as property, equipment and vehicle leases; purchase orders; and other business agreements.
EMPLOYEE BENEFITS
For many companies, insurance is the foundation of an employee benefits package. But what used to be a fairly simple process has turned into a vast array of confusing choices.
There are three basic types of health plans:
Indemnity plans offer traditional benefits and open access to service providers. These plans tend to be more expensive than the other options.
Preferred Provider Organizations (PPOs) develop a network of doctors, hospitals and other health-care providers, and negotiate discounts to maintain costs.
Health Maintenance Organizations (HMOs) contract with doctors, hospitals and other service providers to deliver care. Patients are typically required to see a plan provider for care.
Some issues to consider when choosing a health plan and provider include:
* Financial stability. Check out the insurer's financial health by contacting your state insurance department and reviewing the insurer's ranking from rating agencies such as A.M. Best Co. Inc., Duff & Phelps Credit Rating Co., and Standard & Poor's. Your agent can help you with this.
* Plan features, limitations and exclusions. Find out what the plan does and doesn't cover; then compare that with your employees' needs.
* Service record. How well does the insurer pay claims and respond to customer service and administrative requests? Check with your state's department of insurance and the Better Business Bureau to see if any complaints are on file. Ask to see the plan's latest member satisfaction survey results. And always ask for and check references.
If your employees are paying all or a portion of their health insurance premiums, allow them to pay with pretax dollars. Michael Hart, president and principal of Hart Associates Inc., an advertising agency in Maumee, Ohio, does just that for his 40 employees. "We were able to help our employees by creating a Section 125 program, which our agent administers for us, that allows our employees to pay their part of their health insurance premiums with pretax dollars," Hart says.
In addition to health insurance, consider other types of coverage as part of your benefits package. Many health insurers also offer dental and vision plans. Group life and disability coverage can help employees plan for their futures and protect their families, usually at rates lower than they can obtain on their own.
One of the most common objections to disability insurance is the cost - it's one of the more expensive types of coverage. That's because rates are based on the amount of risk the insurer is taking, and there is a much higher chance people will use their disability insurance than their life insurance. But group disability coverage is more affordable than individual policies.
GOT IT COVERED?
Good insurance decisions are based on an understanding of what types of coverage are appropriate for the various risks you face. The basic types of business insurance include:
* General liability and property coverage. Liability insurance protects you if someone gets hurt while using your product or service or is injured while on your property. The insurer not only pays the damages but also funds and handles your legal defense. Property insurance covers your physical assets - building, equipment, furnishings, fixtures, inventory and so on.
* Umbrella policy. These policies provide additional liability coverage after the limits of your underlying policy are reached. For example, if someone was injured on your property and required $300,000 in medical treatment but the liability limit of your underlying policy is $250,000, your umbrella policy would cover the additional $50,000.
* Automobile. If you own and operate commercial vehicles, or if you use your personal vehicle for business purposes, the vehicles need to be appropriately insured. If business use of your car is minimal, the necessary coverage can probably be included in your personal policy.
* Professional liability. This type of insurance protects professional service providers, such as accountants, lawyers, doctors, dentists, pharmacists, insurance brokers and agents, and consultants, for negligence or errors and omissions that injure their clients.
* Life. Various types of life insurance can be designed to protect your company. Key-man insurance pays the company upon the death of a key person, usually an owner or senior executive, to help the company deal financially with the loss and replace those services.
* Workers' compensation. If you have three or more employees, you're probably required by law to provide workers' compensation insurance. This coverage pays an employee's medical expenses and provides some income replacement when a worker is injured on the job. Laws regarding worker's comp vary by state; check with your insurance agent and state insurance department to find out exactly what you need and how it's purchased.
