An Insurance Checklist

Insurance regulations may vary from state to state and coverages are subject to change. We recommend checking with a qualified agent in your area before deciding which coverages your business may require.

Essential Coverages

Four kinds of insurance are essential: fire insurance, liability insurance, automobile insurance, and workers’ compensation insurance.

Fire Insurance

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 cost.

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.

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. 

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.

10. 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 dry-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 building.

17. A building under construction can be insured for fire, lightning, extended coverage, vandalism, and malicious mischief.

Liability Insurance

1. Legal liability limits of $1 million are no longer 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.

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.

Automobile Insurance

1. When an employee or a subcontractor uses a car on your behalf, you can be legally liable even though you don’t own the car or truck.

3. You can often get deductibles of almost any amount—say $250 or $500—and thereby reduce your premiums.

4. Automobile medical-payments insurance pays for medical claims, including your own, arising from automobile accidents regardless of the question of negligence.

5. In most States, you must carry liability insurance or be prepared to provide other proof (surety bond) of financial responsibility when you are involved in an accident.

7. Personal property stored in an automobile and not attached to it (for example, merchandise being delivered) is not covered under an automobile policy.

Worker’s Compensation

1. Federal and common law requires that an employer:

(1) Provide employees a safe place to work,

(2) hire competent fellow employees,

(3) Provide safe tools, and

(4) Warn employees of an existing danger.

2. If an employer fails to provide the above, the employer is liable for damage suits brought by an employee and possible fines or prosecution.

3. State law determines the level or type of benefits payable under workers’ compensation policies.

4. Not all employees are covered by workers’ compensation laws. The exceptions are determined by State law and therefore vary from State to State.

5. In nearly all States, you are now legally required to cover your workers under workers’ compensation.

6. You can save money on workers’ compensation insurance by seeing that your employees are properly classified.

7. Rates for workers’ compensation insurance vary from 0.1 percent of the payroll for “safe” occupations to about 25 percent or more of the payroll for very hazardous occupations.

8. Most employers in most States can reduce their workers’ compensation premium cost by reducing their accident rates below the average. They do this by using safety and loss-prevention measures.

Desirable Coverage

Some types of insurance coverage, while not absolutely essential, will add greatly to the security of your business. These coverages include business-interruption insurance, crime insurance, glass insurance, and rent insurance.

Business Interruption Insurance

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.

Crime Insurance

1. Burglary insurance excludes such property as accounts, fur 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.

6. If you are in a high-risk area and cannot get insurance through normal channels without paying excessive rates, you may be able to get help through the federal crime insurance plan. Your agent or State Insurance Commissioner can tell you where to get information about these plans.

Glass Insurance

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, counter-tops, 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 covered.

Rent Insurance

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.

Employee Benefit Coverage

Insurance coverage that can be used to provide employee benefits includes 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. Group Life Insurance

1. If you pay group-insurance premiums and cover all employees up to $50,000, the cost to you is deductible for Federal income tax purposes, and yet the value of the benefit is not taxable income to your employees.

2. Most insurers will provide group coverage at low rates even if there are 10 or fewer employees in your group.

3. If the employees pay part of the cost of the group insurance, State laws require that 75 percent of them must elect coverage for the plan to qualify as group insurance.

4. Group plans permit an employee leaving the company to convert group-insurance coverage to a private plan, at the rate for his/her age, without a medical exam, within 30 days after leaving the job.

Group Health Insurance

1. Group health insurance costs much less and provides more generous benefits for the worker than individual contracts would.

2. If you pay the entire cost, individual employees cannot be dropped from a group plan unless the entire group policy is canceled.

3. Generous programs of employee benefits, such as group health insurance, tend to reduce labor turnover.

Disability Insurance

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.

Retirement Income

1. If you are self-employed, you can get an income tax deduction for funds used for retirement for you and your employees through plans of insurance or annuities approved for use under the Employees Retirement Income Security Act of 1974 (ERISA).

2. Annuity contracts may provide for variable payments in the hope of giving the annuitants some protection against the effects of inflation. Whether fixed or variable, an annuity can provide retirement income that is guaranteed for life.

Key-Man Insurance

1. One of the most serious setbacks that can come to a small company is the loss of a key employee. But your key employee can be insured with life insurance and disability insurance owned by and payable to your company.

2. Proceeds of a key-man policy are not subject to income tax, but premiums are not a deductible business expense.

3. The cash value of key-man insurance which accumulates as an asset of the business can be borrowed against and the interest and dividends are not subject to income tax as long as the policy remains in force.

Organizing Your Insurance Program

A sound insurance protection plan is just as important to the success of your business as good financing, marketing, personnel management, or any other business function. And like the other functions, good risk and insurance management is not achieved by accident, but by organization and planning. A lifetime of work and dreams can be lost in a few minutes if your insurance program does not include certain elements. To make sure that you are covered, you should take action in four distinct ways:

1. Recognize the various ways you can suffer loss.
       2. Following the guides for buying economically.

3. Organize your insurance-management program.

4. Get professional advice.

Recognize the risks. The first step toward good protection is to recognize the risks you face and make up your mind to do something about them. Wishful thinking or an it-can’t-happen-to-me attitude won’t lessen or remove the possibility that a ruinous misfortune may strike your business.

Some businesses will need coverage not mentioned in the checklist. For example, if you use costly professional tools or equipment in your business, you may need special insurance covering loss or damage to the equipment and/or business interruption resulting from not being able to use the equipment.

Study insurance costs.

Before you purchase insurance, investigate the methods by which you can reduce the costs of your coverage. Be sure to cover the following points:

1. Decide what perils to insure against and how much loss you might suffer from each.

2. Cover your largest loss exposure first.

3. Use as high a deductible as you can afford.

4. Avoid duplication in insurance.

5. Buy in as large a unit as possible. Many of the “package policies” are very suitable for the types of small businesses they are designed to serve, and often they are the only way a small business can get really adequate protection.

6. Review your insurance program periodically to make sure that your coverage is adequate and your premiums are as low as possible consistent with sound protection.

Have a plan.

To manage your insurance program for good coverage at the lowest possible cost, you will need a definite plan that undergirds the objectives of your business. Here are some suggestions for good risk and insurance management:

1. Write down a clear statement of what you expect insurance to do for your firm.

2. Select only one agent to handle your insurance. Having more than one may spread and weaken responsibility.

3. If an employee or partner is going to be responsible for your insurance program, be sure he/she understands the responsibility.

4. Do everything possible to prevent losses and to keep those that do occur as low as possible.

5. Don’t withhold from your insurance agent important information about your business and its exposure to loss. Treat your agent as a professional helper.

6. Don’t try to save money by under-insuring or by not covering some perils that could cause loss, even though you think the probability of their occurring is very small. If the probability of loss is really small, the premium will also be small.

7. Keep complete records of your insurance policies, premiums paid, losses, and loss recoveries. This information will help you get better coverage at lower costs in the future.

8. Have your property appraised periodically by independent appraisers. This will keep you informed of what your exposures are, and you will be better able to prove what your actual losses are if any occur.

Get professional advice about your insurance. Insurance is a complex and detailed subject. A professionally qualified agent, broker, or consultant can explain the options, recommend the right coverage, and help you avoid financial loss.

By Mark R. Greene

Distinguished Professor of Insurance

University of Georgia

Athens, Georgia 30601