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.
Checklist is divided into three classes of coverage: 1)
ESSENTIAL COVERAGES; 2) DESIRABLE COVERAGES; 3)
For each of the statements, put a check if you understand the
statement and how it affects your insurance program. Then
study your policies with these points in mind and discuss with
your agent questions you still have.
Four kinds of insurance are essential: fire, liability,
automobile, and workers' compensation insurance. In some
areas and in some kinds of business, crime insurance, which
is discussed under "Desirable Coverage," is also essential.
1. You can add other perils-such as windstorm, hail, smoke,
explosion, vandalism and malicious mischief - to your basic
fire insurance at a relatively small additional fee.
2. If you need comprehensive coverage, your best buy may be
one of the all-risk contracts that offer the broadest available
protection 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 of
loss. (2) It may repair or replace the property with material of
like kind and quality. (3) It may take all the property at the
agreed or appraised value and reimburse you for your loss.
4. You can insure property you don't own. You must have an
insurable interest - a financial interest - in the property when a loss occurs but not necessarily at the time the insurance
contract is made. For instance, a repair shop or dry-cleaning
plant may carry insurance on customers' property in the shop,
or you may hold a mortgage on a building and insure the
building although you don't own it.
5. When you sell property, you cannot assign the insurance
policy along with the property unless you have permission
from the insurance company.
6. Even if you have several policies on your property, you can
still collect only the amount of your actual cash loss. All the
insurers share the payment proportionately. Suppose, for
example, that you are carrying two policies one for $20,000
and one for $30,000 - on a $40,000 building, and fire causes
damage to the building amounting to $12,000. The $20,000
policy will pay $4,800, The $30,000 policy will pay $7,200;
7. Special protection other than the standard fire insurance
policy 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 than
60 consecutive days, coverage is suspended unless you have
a special endorsement to your policy canceling this provision.
9. If, either before or after a loss, you conceal or misrepresent to the insurer any material fact or circumstance concerning your insurance or the interest of the insured, the policy may be voided.
l0. If you increase the hazard of fire the insurance company
may suspend your coverage even for losses not originating
from the increased hazard. (An example of such a hazard
might be renting part of your building to a cleaning plant.)
11. After a loss, you must use all reasonable means to protect the property from further loss or run the risk of having
your coverage canceled.
12. To recover your loss, you must furnish within 60 days
(unless an extension is granted by the insurance company) a
complete inventory of the damaged, destroyed and
undamaged 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, the
question may be resolved through special appraisal
procedures provided for in the fire-insurance policy.
14 You may cancel your policy without notice at any time and
get part of the premium returned. The insurance company also
may cancel at any time with a 5-day written notice to you.
15. By accepting a coinsurance clause in your policy, you get
a substantial reduction in premiums. A coinsurance clause
states that you must carry insurance equal to 80 or 90
percent of the value of the insured property. If you carry less
than this, you cannot collect the full amount of your loss, even
if the loss is small. What percent of your loss you can collect
will depend on what percent of the full value of the property you have insured it for.
16. If your loss is caused by someone else's negligence, the
insurer has the right to sue this negligent third party for the
amount it has paid you under the policy. This is known as the
insurer's right of subrogation. However, the insurer will usually
waive this right upon request. For example, if you have leased
your insured building to someone and have waived your right
to recover from the tenant for any insured damages to your
property, you should have your agent request the insurer to
waive the subrogation clause in the fire policy on your leased
17. A building under construction can be insured for fire,
lightning, extended coverage, vandalism and malicious
1. Legal liability limits of $1 million are not considered high or unreasonable even for a small business.
2. Most liability policies require you to notify the insurer
immediately after an incident on your property that might
cause a future claim. This holds true no matter how
unimportant the incident may seem at the time it happens.
3. Most liability policies, in addition to bodily injuries, may
now cover personal injuries (libel, slander and so on) if these
are specifically insured.
4. Under certain conditions, your business may be subject to
damage claims even from trespassers.
5. You may be legally liable for damages even in cases where
you used "reasonable care."
6. Even if the suit against you is false or fraudulent, the
liability insurer pays court costs, legal fees and interest on
judgments in addition to the liability judgments themselves.
7. You can be liable for the acts of others under contracts you
have signed with them. This liability is insurable.
8. In some cases you may be held liable for fire loss to
property of others in your care. Yet, this property would
normally not be covered by your fire or general liability
insurance. This risk can be covered by fire legal liability
insurance or through requesting subrogation waivers from
insurers of owners of the property.
Executive Liability Insurance
Directors & Officers Liability
Employment Practices Liability
1. You can purchase insurance to cover fixed expenses that
would continue if a fire shut down your business - such as
salaries to key employees, taxes, interest. depreciation and
utilities - as well as the profits you would lose.
2. Under properly written contingent business - interruption
insurance, you can also collect if fire or other peril closes
down the business of a supplier or customer and this
interrupts your business.
3. The business - interruption policy provides payments for
amounts you spend to hasten the reopening of your business
after a fire or other insured peril.
4. You can get coverage for the extra expenses you suffer if
an insured peril while not actually closing your business down,
seriously disrupts it.
5. When the policy is properly endorsed, you can get
business-interruption insurance to indemnify you if your
operations are suspended because of failure or interruption of
the supply of power, light, heat, gas or water furnished by a
public utility company.
1. Burglary insurance excludes such property as accounts, for
articles in a showcase window and manuscripts.
2. Coverage is granted under burglary insurance only if there
are visible marks of the burglar's forced entry.
3. Burglary insurance can be written to cover, in addition to
money in a safe, inventoried merchandise and damage
incurred 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 on
or off your premises.
5. A comprehensive crime policy written just for small
business owners is available. In addition to burglary and
robbery, it covers other types of loss by theft, destruction and disappearance of money and securities. It also covers thefts
by your employees.
1. You can purchase a special glass insurance policy that
covers 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 are
specifically insured, and the costs of temporary plates or
boarding up when necessary.
3. After the glass has been replaced, full coverage is
continued without any additional premium for the period
1. You can buy rent insurance that will pay your rent if the
property you lease becomes unusable because of fire or other
insured perils and your lease calls for continued payments in
such a situation.
2. If you own property and lease it to others, you can insure
against loss if the lease is canceled because of fire and you
have to rent the property again at a reduced rental.
Insurance coverages that can be used to provide employee
benefits include group life insurance, group health insurance,
disability insurance and retirement income.
Key-man insurance protects the company against financial
loss caused by the death of a valuable employee or partner.
1. Workers' compensation insurance pays an employee only
for time lost because of work injuries and work-related
sickness- not for time lost because of disabilities incurred off
the job. But you can purchase, at a low premium, insurance to
replace the lost income of workers who suffer short-term or
long-term disability not related to work.
2. You can get coverage that provides employees with an
income for life in case of permanent disability resulting from
work related sickness or accident.
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