A business insurance checklist.

Being properly covered can be affordable.

Let's face it. No business relishes paying insurance premiums, especially firms that walk the financial tightrope. However, having insurance is part of the cost of doing business. So how can you determine if your business is adequately covered?

"The first thing they should do is seek wise counsel--if not someone within their own organization who has the insurance skills necessary, then an adviser or an agent," says Ken Andrew, a vice president at Citizens Insurance in Evansville. In most cases, Andrew recommends selecting an agent who has a successful track record of handling insurance for similar types of insureds.

"Just handing your policy to another agent and saying 'match this' is no way to work," concurs Marty Comstock, commercial operations manager for Gregory & Appel Inc. in Indianapolis, a full-line insurance agency. "You need to have someone come out and sit down with you. That's the only way you can determine if you're properly insured."

But unlike the typical homeowner, who can purchase a cut-and-dried packaged product, business insurance is much more customized. Depending on the industry, there could be automobile, general liability, product liability--even professional liability, covering such occupations as accountants, attorneys and nurses. In today's litigious society, no one can afford to go without insurance protection anymore.

Employment-practices liability is one area that businesses tend to give short shrift to. "These include exposures that arise out of discrimination and sexual harassment," explains Mike Wells, president of Wells & Co. Inc., an independent insurance broker in Indianapolis.

Then there's the cost of worker compensation insurance. Says Andrew, "In some construction accounts, worker compensation insurance could be by itself 5 percent to even 10 percent of payroll. For out-of-state exposures, it could even be worse than that." In contrast, such coverage for employers in the retail industry may be just a tiny fraction of overall sales and payroll.

In order to have peace of mind at night, insurance experts recommend paying particular attention to business-interruption insurance. "So often, people guess, whereas my approach is to take a copy of their financial statement and use a worksheet to develop a more realistic level of coverage," says Harold Everett, a managing partner with Insurance & Risk Management in Fort Wayne.

Business-interruption policies can range from minimal coverage for re-startup costs to full losses sustained, including profit. Companies also can purchase contingent-interruption insurance, whereby supplier delay is covered.

Many businesses also fail to properly insure real property, which includes buildings, machinery and equipment. With property, "they may have not done current appraisals and updated those values on an on-going basis, which results in reduced valuation at the time of loss," says John Dinkel, president of Forrest Sherer Inc. in Terre Haute, a regional insurance agency. And with equipment, "many times what they'll do when they purchase a piece of machinery is begin depreciating it and show the book value on their financial records. Their book values do not reflect what the replacement cost would be."

You might think all this insurance would cost an arm and a leg. But that's usually not the case. Earmarking two percent of gross revenues is a good ballpark figure; in other words, a manufacturing firm with $1 million in annual sales could probably be comfortably covered for around $20,000.

One way businesses can reduce premiums is by choosing higher deductibles. "If they have minimal losses (over a long period), it doesn't make sense to insure with very low deductible levels," Dinkel says.

Adds Andrew, "If your business can stand a $1,000 loss, then take a $1,000 deductible" rather than using that money to buy full coverage, which might leave no funds for purchasing replacement-cost coverage on your building.

Assuming the financial risk for certain coverage is a second way to whittle down premiums. Having funds in reserve to replace property of minimal value might be a prudent financial decision. Or consider by-passing insurance on large automobile fleets (over 50), at least the physical damage portion.

Businesses also should ask the agent about all applicable credits. A packaged credit is usually offered when several types of coverage are combined into one policy. An experience credit allows discount because of a history of low loss. There is even a judgment credit. "If the account appears to be extremely well-managed, extremely good on housekeeping, if everything is just a cut above average, many insurance companies have credits that can be applied," says Andrew.

Put all of the possibilities together and credits can cut premiums in half.

Building materials also affect the cost of premiums. "If it's brick, it's going to be cheaper for fire insurance than wood," notes Andrew. In addition, fire sprinkler systems and such crime-prevention devices as alarms can slash premiums.

Should you purchase insurance from a company that employs its own sales force or an independent insurance agent? "It's very competitive out there," declares Dinkel.

Add Wells, "I don't think the agent's compensation has anything to do with it. I think it has to do with the appetite of the insurance company for the type of risk that's involved."

As for comparing coverage and rates, Comstock of Gregory & Appel suggests businesses confine their search to once every three to five years. "To do this every year is a waste of their time," she says. "They get a reputation in the market of shopping their insurance."

In contrast, loyalty allows a relationship to develop. If a major loss occurs, the carrier realizes it is the exception rather than the rule, and will most likely stick with that business. "It becomes a loyalty both ways," says Comstock.

A yearly review is recommended, though, not only to properly cover new acquisitions and markets (including foreign), but to reflect a change in ownership or status, such as from partnership to corporation. "We always have to be careful that every insured is named on that policy in case of a lawsuit." says Comstock.

Concludes Andrew, "Buying insurance should not be a mystery, but there are not any quick and dirty solutions. Every business is unique and it has to have a plan worked out just for that business."