« Back to News Room Small Business Owners Should Check their Insurance April 25, 2005 FOR IMMEDIATE RELEASE Russ Dubisky, Executive Director 803-252-3455 or cell phone 803-708-5271 russd@scinsnews.com Small Business Owners Should Consider Insurance Needs National Small Business Week April 25-29, 2005 Columbia, South Carolina, April 25, 2005 - Whether you’re running a small flower shop, a home day-care center or a delivery service, you need to plan for the unexpected disaster. The U.S. Small Business Administration, which has announced April 25-29 as National Small Business Week, estimates there are 25 million small business owners. Those small businesses employ more than half the country’s private work force and create three of every four new jobs. Running a small business can be rewarding, but if you are not adequately insured, you risk losing your business. According to the Insurance Information Institute, there are also more than 11 million home-based businesses in the U.S. and according to a recent survey by the Independent Insurance Agents and Brokers, nearly 40 percent of those home-based business owners never bought insurance because they thought they were protected by some other type of coverage. Of the 68,738 full-time business firms with employees in South Carolina, 97.5 percent are small businesses (independent businesses with fewer that 500 workers). The South Carolina Insurance News Service offers the following tips for small business owners: Consider a businessowners policy cover. Insurance companies offer policies that combine protection from all major property and liability risks in one package for businesses. (They also sell coverages separately.) One package purchased by small and mid-sized businesses is the businessowners policy (BOP). Package policies are created for businesses that generally face the same kind and degree of risk. Larger companies might purchase a commercial package policy or customize their policies to meet the special risks they face. BOPs include: 1. Property insurance for buildings and contents owned by the company -- there are two different forms, standard and special, which provides more comprehensive coverage. 2. Business interruption insurance, which covers the loss of income resulting from a fire or other catastrophe that disrupts the operation of the business. It can also include the extra expense of operating out of a temporary location. Liability protection, which covers your company's legal responsibility for the harm it may cause to others. This harm is a result of things that you and your employees do or fail to do in your business operations that may cause bodily injury or property damage due to defective products, faulty installations and errors in services provided. BOPs do NOT cover professional liability, auto insurance, worker’s compensation or health and disability insurance. Talk to your insurance agent or company about the separate insurance policies to cover professional services, vehicles and your employees. Insuring your home business. If you're running a business from your home, you may not have enough insurance to protect your business equipment. A typical homeowner’s policy provides only $2,500 coverage for business equipment, which is usually not enough to cover all of your business property. You may also need coverage for liability and lost income. Insurance companies differ considerably in the types of business operations they will cover under the various options they offer. So it's wise to shop around for coverage options as well as price. Regardless of the type of policy you choose, if you're a professional working out of your home, you probably need professional liability insurance. Some types of in-home businesses, such as those that make or sell food products or sell home-made personal care products, may have to buy special policies. To insure your business, you have three basic choices, depending on the nature of your business and the insurance company you buy it from. They are: 1. Homeowners Policy Endorsement. You may be able to add a simple endorsement to your existing homeowner’s policy to double your standard coverage for business equipment such as computers. For as little as $25 you can raise the policy limits from $2,500 to $5,000. Some insurance companies will allow you to increase your coverage up to $10,000 in increments of $2,500. You can also buy a homeowner’s liability endorsement. You need liability coverage in case clients or delivery people get hurt on your premises. They may trip and fall down your front steps, for example, and sue you for failure to keep the steps in a safe condition. The homeowner’s liability endorsement is typically available only to businesses that have few business-related visitors, such as writers. But some insurers will provide this kind of endorsement to piano teachers, for example, depending on the number of students. These endorsements are available in most states. 2. In-Home Business Policy/Program. An in-home business policy provides more comprehensive coverage for business equipment and liability than a homeowner’s policy endorsement. These policies, which may also be called in-home business endorsements, vary significantly depending on the insurer. In addition to protection for your business property, most policies reimburse you for the loss of important papers and records, accounts receivable and off-site business property. Some will pay for the income you lose (business interruption) in the event your home is so badly damaged by a fire or other disaster that it can't be used for a while. They'll also pay for the extra expense of operating out of a temporary location. Some in-home business policies allow a certain number of full-time employees, generally up to three. In-home business policies generally include broader liability insurance for higher amounts of coverage. They may offer protection against lawsuits for injuries caused by the products or services you offer, for example. In-home business policies are available from homeowners insurance companies and specialty insurers that sell stand-alone in-home business policies. This means that you don't have to purchase your homeowners insurance from them. 3. Businessowners Policy (BOP). Created specifically for small-to-mid-size businesses, this policy is an excellent solution if your home-based business operates in more than one location. A BOP, like the in-home business policy, covers business property and equipment, loss of income, extra expense and liability. However, these coverages are on a much broader scale than the in-home business policy. A BOP doesn't include workers compensation, health or disability insurance. If you have employees, you'll need separate policies for these coverages. Automobile Coverage. If you are using your car for business activities -- transporting supplies or products or visiting customers -- you need to make certain that your automobile insurance will protect you from accidents that may occur while you're on business. Contact your home or auto insurer. Talk to your insurance agent or company about other types of insurance coverage: Workers compensation insurance. Employers have a legal responsibility to their employees to make the workplace safe. However, accidents happen even when every reasonable safety measure has been taken. To protect employers from lawsuits resulting from workplace accidents and to provide medical care and compensation for lost income to employees hurt in workplace accidents, in almost every state, businesses are required to buy workers compensation insurance. Workers compensation insurance covers workers injured on the job, whether they're hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses. Workers compensation provides payments to injured workers, without regard to who was at fault in the accident, for time lost from work and for medical and rehabilitiation services. It also provides death benefits to surviving spouses and dependents. Business interruption insurance. Business interruption insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire. Business interruption insurance covers the profits you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses, like electricity, that continue even though business activities have come to a temporary halt. Commercial auto insurance policy. Whether you need to buy a business auto insurance policy will depend on the kind of driving you do. A good insurance agent will ask you many details about how you use vehicles in your business, who will be driving them and whether employees, if you have them, are likely to be driving their own cars for your business. As a businessowner, you need the same kinds of insurance coverages for the car you use in your business as you do for a car used for personal travel -- liability, collision and comprehensive, medical payments (known as personal injury protection in some states) and coverage for uninsured motorists. In fact, many business people use the same vehicle for both business and pleasure. If the vehicle is owned by the business, make sure the name of the business appears on the policy as the "principal insured" rather than your name. This will avoid possible confusion in the event that you need to file a claim or a claim is filed against you. While the major coverages are the same, a business auto policy differs from a personal auto policy in many technical respects. Ask your insurance agent to explain all the differences and options. Professional liability insurance. Professionals that operate their own businesses need professional liability insurance in addition to an in-home business or businessowners policy. This protects them against financial losses from lawsuits filed against them by their clients. Professionals are expected to have extensive technical knowledge or training in their particular area of expertise. They are also expected to perform the services for which they were hired, according to the standards of conduct in their profession. If they fail to use the degree of skill expected of them, they can be held responsible in a court of law for any harm they cause to another person or business. When liability is limited to acts of negligence, professional liability insurance may be called "errors and omissions" liability. Professional liability insurance is a specialty coverage. Professional liability coverage is not provided under homeowners endorsements, in-home business policies or businessowners policies (BOPs). There are disasters that your basic property insurance won't cover. Floods, earthquakes and acts of terrorism are generally not covered by a basic businessowners policy. Protection against flood damage. Property insurance policies usually exclude coverage for flood damage. Find out from your local government office or your commercial bank whether your business is located in a flood zone. Also ask around to find out whether your location has been flooded in the past. Government projects to map flood zones may be slow to keep up with new developments. If you need to buy a flood insurance policy, contact your insurance agent or the National Flood Insurance Program. For more information about this program call 888-CALL-FLOOD or look at its web site http://www.fema.gov/nfip/. The federal government requires buildings in flood zones that don't conform to flood plain building codes to be torn down if damage exceeds 50 percent of the market value. Consider purchasing "ordinance or law" coverage to help pay for the extra costs of tearing down the structure and rebuilding it. If your policy contains a coinsurance clause, make sure your property is sufficiently insured to comply with the clause. Protection against earthquake damage. Coverage for earthquake damage is excluded in most property insurance policies, including homeowners and business owners package policies. If you live in an earthquake-prone area, you'll need a special earthquake insurance policy or commercial property earthquake endorsement. Earthquake policies have a different kind of deductible -- a percentage of coverage rather than a straight dollar amount. If the building is insured for $100,000, with a 5% deductible, for example, in the event of an earthquake, your business would be responsible for the first $5,000 in damage. Remember that business interruption insurance, which reimburses you for lost income during a shutdown, applies only to causes of damage covered under your business property insurance policy. If your business premises are shut down due to earthquake damage, you'll need to have earthquake coverage to make a claim under a business interruption policy. How can I save money on my business insurance? Here are five ways to save money on business insurance: 1. Shop around. 2. Choose a higher deductible. Deductibles represent the amount of money you pay before your insurance policy kicks in. The higher the deductible, the less you will pay for the policy. 3. Buy a package policy. It can sometimes be cheaper to purchase a package policy, such as a Businessowners Policy (BOP), rather than individual coverages. A package policy provides standard coverages and limits of liability that are appropriate for typical small-to-medium-sized businesses. 4. Work closely with your agent or broker. Keep him or her informed about any major changes in your business. This includes major purchases, expansions or changes in hiring or the nature of your operation. Also, get your agent's advice in terms of disaster planning. Ask what you can do to both reduce risks like fire or work-related accidents, as well as the procedures that should be in place in case your business does suffer a major catastrophe. Having the right coverage and a well thought out disaster plan can save you money in the long run. It may even save your business from going under. Ask about ways to prevent losses. You may be able to reduce your premium for certain coverages by following your insurer's recommendations. These can include workplace safety, disaster preparation, and human resource intervention. For more information on small business insurance or home business insurance, contact the South Carolina Insurance News Service at 803-252-3455 or e-mail alove@scinsnews.com For more information, contact the South Carolina Insurance News Service at 803-252-3455 or use our contact form. 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