Here is an insurance checklist for every family business.
Risk Management involves: Risk Assessment, Loss Control, Risk Transfer and Risk Monitoring. Insurance is the most common form of transferring risk from the business. Insurance professionals and businesses advisors such as
Family Business Experts
play a vital role in effective risk management.
This insurance checklist should help with Risk Assessment and provide
guidelines for discussion with your professional advisors.
Using your browser's File / Save As / Text function, you
should be able to make a copy in a text file and print it so that
it is close at hand as you work on your risk management plan.
BizMove's Managing a Small Business CD
contains a wealthof useful information to assist with managing smallbusinesses, including family businesses. In our opinion, it's avery handy review for managing larger businesses. too! Thishandy checklist is adapted from the Managing A SmallBusiness CD.
CHECKLIST
Checklist is divided into three classes of coverage: 1)ESSENTIAL COVERAGES; 2) DESIRABLE COVERAGES; 3)EMPLOYEE BENEFITS.
For each of the statements, put a check if you understand thestatement and how it affects your insurance program. Thenstudy your policies with these points in mind and discuss withyour agent questions you still have.
ESSENTIAL COVERAGES
Four kinds of insurance are essential: fire, liability,automobile, and workers' compensation insurance. In someareas and in some kinds of business, crime insurance, whichis discussed under "Desirable Coverage," is also essential.
Fire
1. You can add other perils-such as windstorm, hail, smoke,explosion, vandalism and malicious mischief - to your basicfire insurance at a relatively small additional fee.
2. If you need comprehensive coverage, your best buy may beone of the all-risk contracts that offer the broadest availableprotection for the money.
3. The insurance company may indemnify you - that is,compensate you for your losses in any one of several ways:(1) It may pay actual cash value of the property at the time ofloss. (2) It may repair or replace the property with material oflike kind and quality. (3) It may take all the property at theagreed or appraised value and reimburse you for your loss.
4. You can insure property you don't own. You must have aninsurable interest - a financial interest - in the property when aloss occurs but not necessarily at the time the insurancecontract is made. For instance, a repair shop or dry-cleaningplant may carry insurance on customers' property in the shop,or you may hold a mortgage on a building and insure thebuilding although you don't own it.
5. When you sell property, you cannot assign the insurancepolicy along with the property unless you have permissionfrom the insurance company.
6. Even if you have several policies on your property, you canstill collect only the amount of your actual cash loss. All theinsurers share the payment proportionately. Suppose, forexample, that you are carrying two policies one for $20,000and one for $30,000 - on a $40,000 building, and fire causesdamage to the building amounting to $12,000. The $20,000policy will pay $4,800, The $30,000 policy will pay $7,200;
7. Special protection other than the standard fire insurancepolicy is needed to cover the loss by fire of accounts, bills,currency, deeds, evidence of debt and money and securities.
8. If an insured building is vacant or unoccupied for more than60 consecutive days, coverage is suspended unless you havea special endorsement to your policy canceling this provision.
9. If, either before or after a loss, you conceal or misrepresentto the insurer any material fact or circumstance concerningyour insurance or the interest of the insured, the policy maybe voided.
l0. If you increase the hazard of fire the insurance companymay suspend your coverage even for losses not originatingfrom the increased hazard. (An example of such a hazardmight be renting part of your building to a cleaning plant.)
11. After a loss, you must use all reasonable means toprotect the property from further loss or run the risk of havingyour coverage canceled.
12. To recover your loss, you must furnish within 60 days(unless an extension is granted by the insurance company) acomplete inventory of the damaged, destroyed andundamaged property showing in detail quantities, costs,actual cash value and amount of loss claimed.
13. If you and the insurer disagree on the amount of loss, thequestion may be resolved through special appraisalprocedures provided for in the fire-insurance policy.
14 You may cancel your policy without notice at any time andget part of the premium returned. The insurance company alsomay cancel at any time with a 5-day written notice to you.
15. By accepting a coinsurance clause in your policy, you geta substantial reduction in premiums. A coinsurance clausestates that you must carry insurance equal to 80 or 90percent of the value of the insured property. If you carry lessthan this, you cannot collect the full amount of your loss, evenif the loss is small. What percent of your loss you can collectwill depend on what percent of the full value of the propert youhave insured it for.
16. If your loss is caused by someone else's negligence, theinsurer has the right to sue this negligent third party for theamount it has paid you under the policy. This is known as theinsurer's right of subrogation. However, the insurer will usuallywaive this right upon request. For example, if you have leasedyour insured building to someone and have waived your rightto recover from the tenant for any insured damages to yourproperty, you should have your agent request the insurer towaive the subrogation clause in the fire policy on your leasedbuilding.
17. A building under construction can be insured for fire,lightning, extended coverage, vandalism and maliciousmischief.
Liability
1. Legal liability limits of $1 million are not considered high orunreasonable even for a small business.
2. Most liability policies require you to notify the insurerimmediately after an incident on your property that mightcause a future claim. This holds true no matter howunimportant the incident may seem at the time it happens.
3. Most liability policies, in addition to bodily injuries, maynow cover personal injuries (libel, slander and so on) if theseare specifically insured.
4. Under certain conditions, your business may be subject todamage claims even from trespassers.
5. You may be legally liable for damages even in cases whereyou used "reasonable care."
6. Even if the suit against you is false or fraudulent, theliability insurer pays court costs, legal fees and interest onjudgments in addition to the liability judgments themselves.
7. You can be liable for the acts of others under contracts youhave signed with them. This liability is insurable.
8. In some cases you may be held liable for fire loss toproperty of others in your care. Yet, this property wouldnormally not be covered by your fire or general liabilityinsurance. This risk can be covered by fire legal liabilityinsurance or through requesting subrogation waivers frominsurers of owners of the property.
Automobile
1. When an employee or a subcontractor uses a car on yourbehalf, you can be legally liable even though you don't own thecar or truck.
2. Five or more automobiles or motorcycles under oneownership and operated as a fleet for business purposes cangenerally be insured under a low-cost fleet policy against bothmaterial damage to your vehicle and liability to others forproperty damage or personal injury.
3. You can often get deductibles of almost any amount andthereby reduce your premiums.
4. Automobile medical-payments insurance pays for medicalclaims, including your own, arising from automobile accidentsregardless of the question of negligence.
5. In most States, you must carry liability insurance or beprepared to provide other proof (surety bond) of financialresponsibility when you are involved in an accident.
6. Even if the suit against you is false or fraudulent, theliability insurer pays court costs, legal fees and interest onjudgments in addition to the liability judgments themselves.
7. You can be liable for the acts of others under contracts youhave signed with them. This liability is insurable.
8. In some cases you may be held liable for fire loss toproperty of others in your care. Yet, this property wouldnormally not be covered by your fire or general liabilityinsurance. This risk can be covered by fire legal liabilityinsurance or through requesting subrogation waivers frominsurers of owners of the property.
DESIRABLE COVERAGES
not absolutely essential, but will add greatly to the security ofyour business
Business Interruption
1. You can purchase insurance to cover fixed expenses thatwould continue if a fire shut down your business - such assalaries to key employees, taxes, interest. depreciation andutilities - as well as the profits you would lose.
2. Under properly written contingent business - interruptioninsurance, you can also collect if fire or other peril closesdown the business of a supplier or customer and thisinterrupts your business.
3. The business - interruption policy provides payments foramounts you spend to hasten the reopening of your businessafter a fire or other insured peril.
4. You can get coverage for the extra expenses you suffer ifan insured peril while not actually closing your business down,seriously disrupts it.
5. When the policy is properly endorsed, you can getbusiness-interruption insurance to indemnify you if youroperations are suspended because of failure or interruption ofthe supply of power, light, heat, gas or water furnished by apublic utility company.
Crime
1. Burglary insurance excludes such property as accounts, furarticles in a showcase window and manuscripts.
2. Coverage is granted under burglary insurance only if thereare visible marks of the burglar's forced entry.
3. Burglary insurance can be written to cover, in addition tomoney in a safe, inventoried merchandise and damageincurred in the course of a burglary.
4. Robbery insurance protects you from loss of property,money and securities by force, trickery or threat of violence onor off your premises.
5. A comprehensive crime policy written just for smallbusiness owners is available. In addition to burglary androbbery, it covers other types of loss by theft, destruction anddisappearance of money and securities. It also covers theftsby your employees.
Glass
1. You can purchase a special glass insurance policy thatcovers all risk to plate-glass windows, glass signs, motion-picture screens, glass brick, glass doors, showcases,countertops and insulated glass panels.
2. The glass-insurance policy covers not only the glass itself,but also its lettering and ornamentation, if these arespecifically insured, and the costs of temporary plates orboarding up when necessary.
3. After the glass has been replaced, full coverage iscontinued without any additional premium for the periodcovered.
Rent
1. You can buy rent insurance that will pay your rent if theproperty you lease becomes unusable because of fire or otherinsured perils and your lease calls for continued payments insuch a situation.
2. If you own property and lease it to others, you can insureagainst loss if the lease is canceled because of fire and youhave to rent the property again at a reduced rental.
EMPLOYEE BENEFITS
Insurance coverages that can be used to provide employeebenefits include group life insurance, group health insurance,disability insurance and retirement income.
Key-man insurance protects the company against financialloss caused by the death of a valuable employee or partner.
Disability Insurance
1. Workers' compensation insurance pays an employee onlyfor time lost because of work injuries and work-relatedsickness- not for time lost because of disabilities incurred offthe job. But you can purchase, at a low premium, insurance toreplace the lost income of workers who suffer short-term orlong-term disability not related to work.
2. You can get coverage that provides employees with anincome for life in case of permanent disability resulting fromwork related sickness or accident.
Family Business Experts
Understands
Family Values and
Business Systems
Contact Family Business Experts about issues raised in this insurance checklist.
Please stay in touch and subscribe to our
Understanding Family Business e-zine.
Return from Insurance Checklist to
Risk Management
