Ag/Business Insurance

Business Insurance FAQs

If you own your own business or are a partner in one, you're probably already familiar with risk. After all, few things in life are riskier than launching and running your own small business. Part of the risk of any small business is the loss of critical tools and property or liability to others. Either of which can cause loss of income or even force you to close your doors.

Large companies employ full-time risk managers to keep their risk-taking to a minimum. But chances are that as a small-business operator, you are your company's risk manager, along with its personnel director, office manager and possibly the entire staff all rolled into one.

I'm just getting my business started. Do I need insurance right away?
Yes, because the chance that you could suffer a loss begins with the first day of business. You can't get help after the fact. If you suffer a loss and have no insurance or have improper or insufficient coverage, there is very little, if anything, your agent can do to help you. You must be prepared for the risks that are inherent in any business and the losses, sometimes catastrophic, that they can cause.
Also, many states and local jurisdictions require that businesses be insured to begin operating. And if you rent space for your business, your landlord probably requires that you be adequately insured as well.

I don't have any major business assets. Why do I need insurance?
Every business has some property. And, when you think about it, your business is your property. Just like your home and your car, your business needs to be protected from loss, damage and liability. In addition, your business is your source of income, so you need protection from the potential loss of that income.

Generally, there are two types of insurance -- property and liability. Property insurance covers damage to or loss of the policyholder's property. And if somebody sued for damages caused by you or your possessions (other than a vehicle covered by your insurance policy), the cost of the suit -- both defending it and settling it, if necessary -- would be covered by your liability insurance.

Is insurance coverage different for different businesses?
It can be. Many small businesses are now insured under package policies that cover the major property and liability exposures as well as loss of income. A common package policy used by many small businesses is called the Businessowners Policy (BOP).

Generally, these package policies provide the small business owner more complete coverage at a lower price than separate policies for each type of insurance needed. Your insurance agent can help you decide which policy or policies are right for your business. Additional coverage for property, liability or perils or conditions otherwise excluded (e.g., flood protection) can be purchased as endorsements to a standard policy or as a separate, second policy called a difference-in-conditions (DIC) policy.

What types of property do I need to insure?
Your business may not possess all the following types of property, but you can use this list to make sure that you have considered all the property categories and any insurance coverage that may be warranted:

Buildings and other structures (owned or leased)
Furniture, equipment and supplies
Inventory Money and securities
Records of accounts receivable
Improvements and betterments you made to the premises
Machinery Boilers Data processing equipment and media (including computers)
Valuable papers, books and documents
Mobile property such as automobiles, trucks and construction equipment
Satellite dishes Signs, fences, and other outdoor property not attached to a building
Intangible property (good will, trademarks, etc.)
Leased equipment

To establish the amount of insurance you need on each, your agent can help you review the types of property you own and their uses. Some of these items are covered in the basic policies. For others, coverage can be added by an endorsement, or rider.

And some, like money and securities, may not be covered by a standard commercial policy and may require a second, separate policy.

What types of property insurance should I consider buying?
The best thing to do is to take a complete inventory of all your business property, determine all of its value and decide if each is worth insuring. Then check to see that the items on the inventory list are included in the basic business property policy and covered for the correct amount. If not, ask your agent about the cost of purchasing additional coverage to meet your needs.

You also need to consider your business situation. Are you planning a major expansion? Does your inventory have a decidedly peak season (like a toy store in December)? Or does it fluctuate throughout the year (like a clothing store)? Is your liability limit high enough in light of the new job contract you just signed? Business policies are designed to be added to or subtracted from to meet your needs. Be sure to discuss changes to your business with your agent so that he or she can help you ensure your policy still provides adequate coverage.

Some common additional coverages for business property include (although this list is by no means all-inclusive):

Boiler and Machinery Insurance - Even if you do not own a boiler, you may need this coverage. The term "boiler and machinery insurance" is gradually being replaced with terms such as "equipment breakdown" or "mechanical breakdown" coverage. This insurance provides coverage against the sudden and accidental breakdown of boilers, machinery or equipment, including computer systems and telephones/communication systems. Coverage usually includes reimbursement for property damage, expediting expenses (e.g., express transportation charges), and business interruption losses.
Builders Risk Coverage - This covers buildings in the course of construction. Depending on the policy, this coverage can be for either the building's value at the time of loss or its full value at the time of completion.
Building Ordinance Coverage - Provides coverage when a community has a building ordinance stating that when a building is damaged to a specified extent (usually 50%), it must be completely demolished and rebuilt in accordance with current building codes rather than repaired. Special attention is required when establishing the amount of insurance.
Business Interruption Insurance - This covers the loss of earnings as a result of damage or loss of business property. Reimbursement for salaries, taxes, rents, and other expenses plus net profits that would have been earned during the period of interruption can be included.
Commercial Crime Coverages - This covers money and securities, stock and fixtures against theft, burglary and robbery both on and off the insured premises and from both employees and outsiders.
Debris Removal Coverage - Covers the cost of removing debris after damage from fire or other covered peril that requires debris removal before reconstruction of the damaged building can begin. This is not part of fire insurance coverage and must be added as an endorsement.
Fidelity Bonds - This covers business owners for losses due to dishonest acts by their employees.
Glass Coverage - This provides coverage for glass breakage such as store windows and plate glass on office fronts.
Inland Marine Insurance - Primarily covers property in transit such as from warehouse to warehouse or warehouse to retail store, as well as other people's property left on your business premises, such as clothes left at a dry cleaning business or an employee's personal effects left in the company locker room.
Insurance for Loss of Lease Income or Value - This covers the loss of income when rental property is damaged or destroyed and the loss of value when the owner of the rental property also used some of its space for business. If the tenant of the destroyed or damaged building is forced to rent space elsewhere at a higher cost, this is called loss of lease value.

Who decides how much my business property is worth?
Property insurance can be purchased on the basis of the property's actual value, on its replacement cost, or on an agreed amount.

The differences among the three are:

Actual Cash Value - The replacement cost of the item minus depreciation. For example, a new desk may cost $500. If your 7-year-old desk gets damaged in a fire, it might have depreciated 50%. Therefore, insurance would pay you $250.
Replacement Coverage - This coverage pays the cost of replacing an item without deducting for depreciation. So today's cost for a desk of a size and construction similar to the 7-year-old one damaged by fire would determine the amount of compensation. If it costs $500 today, that would be the replacement coverage.
Agreed Amount - Art objects, antiques and other unique items are usually insured at an amount agreed upon when the policy is being written. An appraiser values the goods to be insured and the business owner and the insurer agree upon an amount that the insurer will pay if the goods are destroyed due to a covered peril.

Check your policy. If you prefer replacement coverage and do not already have it, this coverage can be added to your policy. Inflation-guard coverage, which automatically increases your insurance amount a certain percentage, protects against rising construction costs. Your agent can tell you about the costs involved.

What about the cars and truck that I have in my business? Is the coverage like what I have on my personal car?
Yes, but in addition to covering the vehicles you own for liability, medical payments, uninsured motorist coverage, comprehensive and collision, it also covers you when you rent a car and when your employees are operating their personal cars for your business. Be sure to review your auto exposures with your agent.

Will I need to protect my employees in the event they are injured on the job?
Yes, and in most states there are legal requirements that must be met, and for which you may be responsible. State laws vary, but most states require that you carry some form of workers compensation insurance. This protects the employee and also offers you, the business owner, and a degree of immunity from lawsuit by an injured employee.

I keep one auto strictly for business. Do I need a separate policy?
Yes. Whether you have one vehicle or several, you will need a business automobile policy. Such a policy covers any motor vehicle used in your business including cars, vans, trucks and trailers pulled by trucks, and offers coverage if they are damaged or stolen. It also covers liability if the business vehicle is in an accident and the driver is at fault. This policy is not for truckers or commercial garages. They have special liabilities and must secure special policies that deal with their different needs. Businesses that have a fleet of vehicles will of course have different needs than a business with one or two, and their policies will reflect these differences.

I just signed a 3-year lease to open my business. Why does my insurance agent want to see my lease?
Whether the business lease is for a building or for equipment, your agent needs to determine who is responsible for insuring the leased items--you or the lessor. For leased buildings or building space, there are other factors to be considered, such as who is responsible for plate glass coverage and whether your landlord requires tenants to carry minimum amounts of liability insurance, and the extent of a hold harmless agreement. These and other situations covered in the lease affect the amount and kinds of insurance you need.

I work out of my home. Will my homeowners insurance cover my business?
Yes, but on a very limited basis. Loss of business property is usually reimbursed up to $2,500 in the house and up to $250 for business property damaged or lost away from the premises. Even if your business is a sideline such as a craft studio, these limits may be too low to cover all the equipment and materials you have accumulated. It's also important to know that no business liability coverage is included in a standard homeowners policy. Your agent can help you ascertain what, if any, additional coverage you need. This additional coverage may be added to your homeowners policy or found in a separate commercial policy.

What is coinsurance all about?
Most business policies include a "coinsurance" clause stipulating what percentage of the total value of your property must be insured to be fully reimbursed for a loss, even a partial one. (Most losses are partial.) If you insure for less than that amount, your insurance company may impose a "coinsurance penalty" on your claim.

Here's how coinsurance works:
Let's say you have a building insured that you believe would cost $100,000 to replace and a coinsurance penalty in your policy of 80 percent. You insure the building for $80,000, thinking you have fulfilled the coinsurance clause. A fire loss causes $60,000 worth of damage, so you submit a claim. Your insurance company subsequently determines that the replacement cost of the building is actually $150,000. To determine how much to pay on the claim, the insurer divides the amount of insurance you purchased ($80,000) by the amount you should have purchased (80% of $150,000 or $120,000). The result (two-thirds of $60,000 is $40,000) is the amount of your claim the insurer will pay.

Now that my business is established, I think it is time to offer my employees some benefits. What do I need to know?
Employee benefits generally include health insurance (sometimes including dental and vision benefits), term life insurance, and possibly a retirement program. Group disability insurance is also available, although employers and employees opt for this benefit less frequently.
Depending on the size of the group to be insured, the business may serve as the policyholder for the group's insurance. However, for many small businesses, the insurer will pool them together in a multiple-employer trust. The trust itself, rather than any single employer, is the policyholder. This enables smaller businesses to benefit from the lower premiums and other services enjoyed by large groups.

LSB offers group benefits programs. Contact us to learn more.

Can I do anything to lower my insurance premiums?
Remember that all insurance premiums are based on the risks involved. The insurance company evaluates the situation to determine the risks--or potential for losses--and bases its rates on the results. Therefore, deliberate steps you take to lower your risks not only can help safeguard your business but also may make you eligible for lower insurance rates. Consider these steps:

Maintain adequate lighting throughout your business premises.
Keep electrical wiring, stairways, carpeting, flooring, elevators, and escalators in good repair.
Install a sprinkler system, smoke and fire alarms, and adequate security devices.
Keep only a small amount of cash in the cash register.
Keep good records of inventory, accounts receivable, equipment purchases and the like. Consider keeping a second set of records in a safe off-site location, such as a safety deposit box at your bank or other secure place.
Make sure your employees have good driving records.
Make sure your employees know how to lift properly and use all necessary safety equipment, such as goggles, gloves and respirators.
Consider using the services of a risk manager. Such an outside consultant can advise you of any safety or environmental regulations you may have overlooked or not been aware of and talk to your employees about safety practices.
You may also wish to raise your deductible where appropriate to lower your insurance premiums.
How high to raise the deductible should be governed by how much you can afford to pay out of pocket. Be careful not to raise it so high that you cannot cover it should a loss occur.
Your agent should be able to inform you of various risk-management techniques to help you address some of the risks inherent in your business.

Who keeps an eye on the insurance companies?
Insurance is a heavily regulated industry. Every state has a department that regulates and monitors every insurer operating within the state’s borders. In addition to approving rates, your state's insurance department is involved in all insurance matters on behalf of private citizens and businesses. It also issues operating licenses to insurers and agents, based on their ability to meet the state's requirements for conduct and knowledge about insurance issues.

References: The information contained herein has been obtained from insurance companies contracted with LSB Financial, including but not limited to Allied, Travelers, EMC, and others. In addition, information has been acquired from the Federal Emergency Management Agency (FEMA), the Independent Insurance Agents of America, and the Iowa Insurance Division. The information contained herein is intended to be general and informative in nature and does not supersede verbiage contained in actual insurance policies.