The following are three articles from the Insurance Information Institute addressing a number of topics concerning today’s thriving, evolving, and diverse business organizations. This is especially true for entrepreneurial businesses and businesses managed from one’s home. Be certain to discuss your business needs and plans with your attorney, accountant and insurance agent before starting a business or modifying your existing business in any way.
Alan Plafker • President & CEO, Member Brokerage Service LLC • A Melrose Credit Union Service Organization
FINDING COVERAGE THAT MATCHES YOUR BUSINESS SIZE
SMALL BUSINESS BASICS
The types and amount of insurance that you need for your small business are based on several factors. What type of business are you in? Where is your business located? Do you have employees?
You can evaluate your insurance needs—and start your search for insurance—by first considering the size of your business. Definitions of business sizes vary and can be based on the number of employees, total sales and earnings. The definitions below can help you determine where your business falls—and your insurance professional can provide guidance as well.
Home Based Businesses
Many successful start-ups have often begun in a home. Typically home based businesses consist of one or no additional employees and have relatively little revenue.
However, that doesn’t mean that the business shouldn’t be insured. Every business, including home based businesses, should be insured against risk.
According to the U.S. Small Business Administration (SBA), more than half of American businesses are based at an owner’s home and too many fail to carry appropriate business insurance.
While a home based business is almost always by most definitions a small business, its location may require special attention to insurance coverage. Homeowners insurance alone will not necessarily cover your home based business against business property loss or liability.
Small Businesses
Do you know all of your employees by name? Does your business make less than a few million dollars annually? If so, you’re most likely operating a small business.
Some insurers consider businesses with 50 or fewer employees to be small businesses. The SBA defines a small business concern as one that is independently owned and operated, is organized for profit, and is not dominant in its field.
A common small business policy, called a BOP, for “Business Owners Policy”, is usually available only for businesses with fewer than 100 employees and revenues of up to about $5 million or less. While you can purchase customized insurance to cover your specific type of business, insurers offer standardized small business policies that enable you to affordably protect your company against the most common risks.
Medium Sized Businesses
If your small business is succeeding and growing you may have graduated into a medium sized company. Again, definitions of business sizes vary, but if your company has between 50 and 1,000 employees with annual revenues between $10 million and $1 billion you can seek insurance as a medium sized business.
Insurers have special policies designed specifically for this segment that may combine property and liability coverage. If your medium sized business owns especially expensive equipment or has locations in more than one state, you may also want to seek special customized policies.
Large Businesses
Large businesses have at least 500 employees; revenue requirements are dependent on the type of business.
Large, complex businesses have multi-million dollar risks, and commercial insurance is customized to meet a company’s specific needs. Large companies even have employees dedicated to analyzing the potential causes of accidents or loss, recommending and implementing preventive measures, and devising plans to minimize costs and damage should a loss occur including the purchase of insurance and managing claims. This practice is known as risk management.
If you run a small business you generally have to act as your own risk manager. Sometimes a small business will hire a risk management consultant. An insurance professional can also help assess the risk for all business sizes.
INSURING YOUR HOME BASED BUSINESS
SMALL BUSINESS BASICS
Whether you’re running a part time, seasonal or full time business from your home, you’ll want to carefully consider your risks and insurance needs. Starting a business, even at home, can be a challenging venture, and having the right insurance can provide a financial safety net and peace of mind.
Your insurance choices should, in part, be based on the type of business you operate. For instance, if you’re a sole practitioner home based accountant, you’ll have very different insurance needs than your neighbor who runs a child care business. When considering insurance for your business, here are some questions to ask yourself:
- What type of business do I run? What are the potential risks faced by your type of business?
- What is the value of my business property? Do you have expensive equipment, such as cameras or commercial printers? Do you stock valuable business inventory, such as gemstones?
- Does my business have employees?
- Do customers or contractors visit my business at my home?
- Do I use my car or other vehicles in the course of my business operations?
- Does my business store customers’ financial and personal information on a computer or through a cloud computing service?
The answers to these questions will guide which types of insurance to purchase and how much coverage you’ll need. For your home based business the main types of insurance to consider include the following:
Property and Liability Insurance
Depending on the nature of your home based business, you’ll need insurance to protect the value of your business property from loss due to theft, fire or other insured perils. You’ll also need liability protection to cover costs if someone is injured as a result of visiting your business or using your product or service.
Your homeowners insurance may provide some protection for your business, but it may not be sufficient. Options for property and liability insurance for home based businesses include:
- Adding an “endorsement” to your homeowners policy,
- Stand alone home based business insurance policies,
- A Business Owners Policy, or BOP, which combines several types of coverage.
Business Vehicle Insurance
Your personal auto insurance may provide coverage for limited business use of your car. But if your business owns vehicles or your personal vehicle is primarily used for business purposes, you’ll need business vehicle insurance.
Workers Compensation Insurance
If you have employees you’ll want to strongly consider purchasing workers compensation insurance to cover costs if an employee is hurt on the job.
Workers compensation insurance provides wage replacement and medical benefits to employees injured in the course of employment, in exchange for relinquishing the right to sue the employer. In some states, workers compensation insurance is mandatory, so be sure to check your state’s workers compensation website for local requirements.
Other types of insurance may be suitable for your home based business as well. Your insurance professional can help you evaluate your needs and select insurance to meet your budget.
WHEN DISASTER STRIKES: PREPARATION, RESPONSE AND RECOVERY
MANAGING BUSINESS RISKS
No business is totally immune from disaster. Every year, businesses temporarily shut down, or close forever, because of a disaster such as a flood, fire or hurricane. The Insurance Information Institute estimates that 25 percent of businesses never reopen following a major disaster.
Fortunately, you can take proactive steps to mitigate the impact of a disaster on your business. In addition, carrying adequate insurance coverage can help your business get back on its feet quickly.
Disaster Preparation
Households—especially in areas prone to hurricanes, tornadoes and earthquakes—often prepare for disasters by storing extra supplies, having an evacuation plan, and learning about emergency resources. Businesses similarly want to prepare with a focus on restoring your operations as soon as possible and minimizing your losses. To prepare adequately for a disaster take the following steps:
Develop a Formal Written Plan—Sometimes called a “Disaster Recovery Plan” or “Business Continuity Plan,” this document should detail how your business will respond to and recover from a disaster, including temporarily relocating your business.
The National Fire Protection Association (NFPA) has developed a National Preparedness Standard for developing a plan. Some businesses also develop specific plans to protect and recover their information technology (IT) infrastructure. In today’s era of cloud computing, it is increasingly easier to back up data offsite.
Train Employees—Share your Disaster Recovery Plan with employees, assign responsibilities, and offer training so that your workforce can help your business recover. You may also want to conduct drills to assess and improve response.
Store Emergency Supplies—Keep flashlights, a first aid kit and a battery powered radio on hand at your business. Depending on its location, you may even want to store food, water and blankets. As feasible and needed, consider stocking equipment that can help your business return to operations, such as a generator.
Maintain Key Information Offsite—To get your business up and operating again after a disaster, you’ll need to be able to access critical business information. In addition to backing up computer data, keep an offsite list of your insurance policies, banking information and the phone numbers of employees, key customers, vendors and suppliers, your insurance professional and others.
You’ll also want to maintain an inventory of your business equipment, supplies and merchandise. You may want to photograph items as well.
Disaster Response and Recovery
After a disaster, you’ll want to put your Disaster Recovery Plan into action. Read the Insurance Information Institute’s “Best Practices for Filing a Business Insurance Claim,” which details several steps to control damage and recover costs. In the immediate aftermath of a disaster, take the following actions as appropriate:
Secure your building, boarding up entry points if necessary.
Make temporary repairs, especially to minimize further damage, such as placing a tarp over a hole in your roof.
Relocate salvageable equipment and property to a safe, protected location.
Inspect your property and keep a detailed list of damages. Take photos to document damage.
Clean up your property, taking care to wear safety gear such as gloves and protective eyewear. If feasible, save damaged property in case it needs to be inspected by your insurance adjuster.
Contact your insurance professional and your insurer to begin the claims process.
Keep receipts of all expenses related to the disaster.
Once you’ve secured your property and taken other immediate steps, you can begin to focus on making your business operational once again. You should lay the groundwork for restarting operations in your Disaster Recovery Plan. Issues to consider include:
Location—Should you open a new temporary location or can you operate from your home or use the facilities of a partner or even friendly competitor?
Communications—How will you communicate with your employees, customers, vendors and suppliers?
Insurance Claims—In addition to filing a property claim, you’ll want to file a business interruption insurance claim if you carry this type of coverage. This insurance will help you cover costs of relocating as well as lost income.
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