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Insuring Success.

10 Ways to Help Determine Insurance Needs for Small Businesses

As the owner of Distinctive Image, a Salt Lake City custom picture-framing business, Tracey Jones finds himself working with materials ranging from World War I documents to christening dresses to Chinese etchings. He offers hand carved mattes, an on-site consulting service and pick up and delivery. Because he transports clients' property, Jones insures his van as a business vehicle and is the sole driver. He also insures the contents of his van so they are covered in case of an accident.

Salt Laker Carol Louder is the originator and owner of Macabi Skirts. A former Peace Corps volunteer in Tunisia, Africa, she was fishing in Mexico when she conceived the idea for her current business. Designed for adventure travel, the versatile Macabi skirt converts to a long skirt, short skirt, pants or shorts with the simple adjustment of clips and snaps. With more and more women enjoying exotic travel, the skirt's market is steadily increasing. To help insure the success of her business, Louder purchased business liability insurance for her building and inventory.

Julie Smith's business dream came true when she opened her 2,000 square foot retail store, The Vintage Vagabond, in Holladay two years ago. The store features home accessories such as quilts, linens and dishes, gifts, and custom furniture. To safeguard her business investment, Smith purchased a $1 million liability policy -- "in case a customer fell or was injured." She also bought property coverage to insure her inventory against theft or fire, and loss-of-income insurance, so that she would have funds to rebuild her business should the building burn or be destroyed. She also bought liability coverage for her inventory.

In building their small businesses, Jones, Smith and Louder realized that insuring against the appropriate risks could save their firms from bankruptcy.

An account executive at Grant-Hatch & Associates, a Certified Insurance Counselor (CIC), and a volunteer instructor for the Small Business Administration, L. Kay Howland helps small business owners determine their insurance needs. He offers the following suggestions to small business owners and start-ups on how to determine insurance needs.

1. Seek business personal property and business liability coverage first.

When beginning a business, Howland suggests considering an initial insurance purchase to cover business personal property and general liability coverage. "If your business includes work with the property of others, be sure you provide insurance to cover their belongings along with your own," he says. Business property coverage includes items such as office contents, inventory, property in transit, tools and equipment, property in the open, and property of others. In addition, liability coverage protects the small business owner for a wide variety of exposures, such as bodily injury and property damage that may be caused as a result of work performed, products sold by the business, or normal business operations.

2. Loss-of-income and extra expense insurance may be your most important choice.

Loss-of-income insurance can pay for ongoing expenses while your business is shut down or not in full operation. In addition, you can purchase extra expense coverage to cover additional expenses to put you back in operation as quickly as possible, says Howland. This could be temporary leases, new phone lines, temporary shelving, or whatever expenses are required to minimize your loss. "Loss of income insurance essentially protects the financial statement of your company," Howland says.

3. Grow your coverage along with your business.

Howland says that entrepreneurs often start out with low insurance limits to save money. "Then, as their inventory grows, they often don't call their agent to inform him of dramatic changes taking place." He feels that businesses have a greater likelihood of loss when they are busiest. "This can happen when the building is full, products are packed in, or items are placed too close to heaters." He suggests regularly consulting with and informing an insurance agent of growth within the business.

4. Consider computer equipment coverage.

Because computer data is financially valuable both in itself and as a tool of transacting business, Howland suggests considering a secondary coverage, described as "electronic and data process equipment coverage," rather than bundling computer equipment within business property coverage.

Electronic and data processing cover age includes a much broader coverage than traditional business property coverage. In addition, make sure you add mechanical breakdown and electronic disturbance as additional endorsements, Howland advises. "You may even want to add loss-of-income to your electronic and data processing equipment coverage. Recovering lost data such as accounts receivable can be highly expensive."

5. Be aware of policy exclusions.

Howland suggests business owners become aware of typical exclusions in a standard insurance policy, and consider whether to insure these items separately. Typical exclusions include signs that are detached from a building, glass, and flood and earthquake insurance. "Remember, if you are leasing a building and only insuring your business contents, the typical exclusions still apply."

6. Try to have your policy written without a co-insurance clause.

Howland refers to co-insurance clauses as "evil," explaining they require business owners to insure their property to a certain value, usually 80 percent to 90 percent of its worth. If business personal property is valued at $100,000 and its owner's insurance policy requires a 90 percent co-insurance, the entrepreneur would need to insure the contents for a minimum of $90,000 worth of insurance. "If he had insured to $45,000 he would receive a penalty for not insuring to value," explains Howland. He adds that co-insurance typically requires 70, 80 or 90 percent of the personal property's worth. He suggests asking an insurance agent if it is possible to have a policy written without a co-insurance clause. If not, make sure you insure all of your equipment to value.

7. Cover your business regarding employees' car use and business contents while being transported.

Howland explains that "hired and non-owned auto" coverage assumes liability for an employee's car if an accident occurs while being used for business. "This insurance does not cover the physical damage to the employee's car, but does cover the business in the event that they are sued." He adds that if a business owner uses his vehicle for business, he may want to consider insuring his car on a business policy.

8. Consider professional liability insurance.

Liability is important for small business owners products, operations and premises, says Howland. Entrepreneurs need to be sure they are covered for products they sell and work they do. In addition to general liability, some businesses may need to consider professional liability insurance. Professional liability is important for service businesses as they are not providing a product per se.

9. Choose an agent who understands your business.

There are many educational opportunities that allow agents to keep current regarding insurance options and forms. The CIC designation requires extensive training, along with an annual update. The Certified Property and Casualty Underwriter affiliation also requires proper training. Along with checking qualifications, Howland suggests asking a potential agent about businesses he/she insures that are similar to yours to see if he/she understands your business.

10. Consult your agent about specialty coverages.

Business owners may want to discuss specialty coverages that are excluded in standard property and general liability policies, such as: employment practices liability, fiduciary liability, employment benefit liability, directors and officers coverage, and/or crime coverage.

Experts agree that while starting any business is a risk, giving a small portion of business funds as a premium guarantees entrepreneurs a quick recovery from any peril.

Carolyn Campbell is a Salt Lake City-based freelance writer.
COPYRIGHT 2001 Olympus Publishing Co.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001 Gale, Cengage Learning. All rights reserved.

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Author:Campbell, Carolyn
Publication:Utah Business
Geographic Code:1U8UT
Date:Feb 1, 2001
Words:1259
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