Common insurance mistakes.

Failure to State Proper Value

"Sometimes people put the value of their assets too high for insurance purposes and sometimes they put it too low," Brown says. "When they estimate the value of their sales or the value of their equipment for a lender, businesses may give a grandiose figure, far above the real value. If they use those same figures in estimating how much insurance they'll need, they'll pay more than they should. On the other hand, if businesses underestimate the value of a building or other important asset, a loss could put them out of business. It's best to be accurate, but estimating high is less dangerous than estimating low."

Brown points out that umbrella policies give good value for companies that want to make sure they have ample coverage. Umbrella policies provide additional insurance, above the standard amount. For instance, a company with $1 million in liability insurance could buy an "umbrella policy" to secure an additional $1 million in insurance. The umbrella policy will cost much less than the standard policy since, statistically, many more claims are paid out for less than $1 million than for more than $1 million. "These days, you could be sued for looking the wrong direction," Brown says. "Businesses need plenty of liability insurance."

Failure to Understand the Dangers of Co-Insurance

"Many businesses don't know about co-insurance penalties," says Warren. "If you insure a building or other asset for only partial value, the insurer will reduce the sum paid on your claim by the proportion which the amount of insurance you purchased bears to the asset's real value." Assume that a business insured its building for $1 million and it was really worth $2 million. If the building was 50 percent destroyed, the insurer would reduce the payment to $500,000 rather than $1 million, even though the business had $1 million in coverage.

Failure to Buy Ordinance and Law Coverage

Assume you own a building built in 1990, Brown suggests. You insure it for $1 million, which would be the cost to rebuild it as it was originally built. Also assume, though, that the local building code has been changed since 1990, and the cost to rebuild the building to the current code is $1.25 million. If you don't have "ordinance and law coverage," your insurer will only pay $1 million. Brown points out that new legal requirements imposed by revised building codes or new laws, such as the Americans with Disabilities Act, can wreak havoc with building costs.

"I remember a restaurant that had only one bathroom," Brown says. "It burned down. The building code had changed and now required both men's and women's bathrooms. The restaurant didn't get enough insurance money to put in both bathrooms, it couldn't rebuild the building, and it went out of business."

Failure to Report Changes in Operations

"Some businesses change what they do," Warren says. "For instance, a landscaper may begin doing general contracting. If the business doesn't let its insurer know that, losses relating to the general contracting part of the business may not be covered."

Failure to Report New Assets

When businesses buy a new car or truck, owners sometimes assume that the dealer will call the insurance company to report that the vehicle has been purchased and must be added to the policy. "That may not happen," Warren says. "Sometimes there's a bad accident and we get called to pay an insurance claim on it, only to find that the vehicle has never been added to the client's insurance policy."

RELATED ARTICLE: Complete Coverage

Even shrimp boats need insurance. One challenge of being an insurance agent is fulfilling unusual insurance requests. The agents at The Buckner Company and ATP Insurance Group have fielded policies for the following uncommon companies:

* Cloud seeder and crop dusting operations

* Animal pathology lab

* Shrimp boat and fish spotting businesses

* Race horses

* Gang and troubled youth intervention center

* Film production at Lake Powell, including movie cameras transported on rental boats

* Loss and damage coverage for camera mounted on the bottom of a helicopter for a TV chase scene

* Liability policies for river running guides and scuba diver instructors

* Kayak rentals

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* Ocean cargo coverage to cover water purification system en route to Australia

* Business coverage for importer of Potty-Time (a bracelet that sings tunes to kids at various times to remind them to go to the bathroom)

* Ocean cargo, coverage to cover water purification system eh route to Australia

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* Business coverage for importer of Potty-Time (a bracelet that sings * tunes to kids at various times to remind them to go to the bathroom)