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Insuring a Key Asset

Your Stream of Income

 

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After practicing law for many years, I have become a firm believer in the use of insurance. Having recently witnessed the ravages of fire to metroMAGAZINE and other businesses impacted by fire or similar disasters this winter, I decided that this month's column would cover some insurance basics.

 


 

Often, we find that business owners buy a policy without really understanding what they purchased. The business owner should be an active participant in the insurance acquisition process. 
 

Basic types of insurance that a business needs are as follows:

  • Property insurance covers the damage to the location of the business, the contents, and sometimes the property of others in your custody or control. 
  • Liability insurance protects you against injury claims.
  • Business Interruption insurance protects your income in the event your business cannot operate for a period of time.
  • Workers compensation insurance protects you to the extent workers experience an on the job injury.
  • Professional liability insurance protects you from errors and omissions and is typically required for professionals such as physicians, lawyers, engineers, CPA's, technology consultants, fitness professionals, engineers, etc.

To determine the types of insurance coverage that you need, prepare a list of all of your property, your potential liabilities, and income categories. Give thought to risks that are particular to your business?

"The exclusions and limits often come as a surprise to the business owner when the time comes to recover under the policy. In policy design, the business owner should pay close attention to exclusions and optional coverages."

-Mary Vandenack

Do you have a machine that is hard to replace or one that has a special function that would seriously impact business income in the event of a breakdown? Do you have fine arts? Does your business create valuable papers? Does the business operate in the international arena?

Most property and casualty policies are designed to have a general coverage with certain limits. The general coverage will have exclusions and limits on various items of coverage. The exclusions and limits often come as a surprise to the business owner when the time comes to recover under the policy. In policy design, the business owner should pay close attention to exclusions and optional coverages.

In the current business climate, many businesses are heavily reliant on technology; however, this is an area in which businesses are often under-insured. Technology is often excluded from the general coverage and must be covered with additional coverage. In determining the amount needed to cover technology, consider the likely replacement cost of all equipment defined in the technology category (Read the definitions closely). Also, consider the software that is required, the data that might need to be recovered and the time consumption in rebuilding the entire network. 

Another area where businesses are often under-insured is employee dishonesty coverage. In determining appropriate limits, consider the technological environment. Do you have sufficient double-checks to be certain that an employee can't transmit everyone's payroll to his own account or to pay the American Express bill three times twice to his account? Most businesses do not have the doublechecks (which should be addressed by your accounting professional) nor the insurance to cover the risk.

Once you have devised an insurance plan appropriate for your business, calendar annual reviews. Business needs often change quickly. 

-end- metroMAGAZINE

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