In the business insurance sector, the rate of premium growth has moderated over the last four years or so. Yet rates for coverage, even for top business insurance continues to rise faster than inflation, according to the latest data from the Council of Insurance Agents and Brokers.
Few analysts expect this trend to abate, especially as coverage costs continue to rise for the same components of business insurance that impact consumers, particularly property insurance.
Insurance, including business interruption coverage, is a must for most small businesses. Read on to discover some moves to avoid when purchasing business insurance, as identified by experts.
Familiarize yourself with your coverage before you need it
Failure to know in advance what your business is covered for and what filing a claim entails can easily leave you digging up insurance documents while dealing with a business catastrophe. (Witness some coverage by insurance industry publications of store owners discovering claims requirements while examining looting damage.)
In fact, according to a., understanding what is and isn’t covered by a policy has been one of the top challenges faced by small business owners study from Nationwide. If it’s been a while since you last purchased coverage, take some time to familiarize yourself with your policy’s coverage and claims procedures.
Among the details to explore are possible waiting periods, coinsurance requirements and civil authority limitations, says Hubert Klein, partner and practice leader of the Financial Advisory Services Group in EisnerAmper LLP’s Iselin, NJ office. He offers a real-world example of a business owner who expected to claim up to the $4 million coverage limit for damages caused by Superstorm Sandy. But he overlooked that his policy limited losses per company location to no more than $300,000. The location limit meant he received only $2.2 million, just half his coverage limit.
Don’t skimp on the supposed extras
Given the cost of business insurance, owners are tempted to forgo certain coverages, perhaps in an effort to save money or because they feel it’s an unlikely risk, says Boggs of the Independent Insurance Agents & Brokers of America. Experts recommend including coverage unless the cost becomes truly prohibitive.
A common mistake, Boggs says, is basing coverage on incorrect assumptions. For example, he cites a customer who decided not to purchase theft coverage because he believed his employees would not steal from him. But one did and the losses were not covered by his policy.
In other cases, companies continue to add so-called endorsements to the policy, to manage specific risks that could be catastrophic. For example, Boggs cites a manufacturer that is highly dependent on a buyer or supplier, and yet does not add an approval that protects the manufacturer in the event that another company is unable to meet its requirements. “When the business has a specific need covered by a policy endorsement, not accepting coverage for a few dollars in premium can be very costly,” says Boggs.
Don’t prioritize the cost of the premium over the level of coverage
It can be equally risky to purchase insurance based on what you want to pay and then tailor the policy to that figure, regardless of the financial risks that may be left uncovered.
To avoid this mistake, Klein says, start by doing a risk analysis that takes into account your potential exposure and what your needs might be. “People chasing [low] premium pricing often sacrifices tens of thousands of dollars in possible coverage recovery for a minimal premium,” Klein says. He cites the example of a business owner who tried to cut about $1,000 from his premium, without sufficiently thinking about how dramatically the insurance coverage could have been compromised.
For his part, Boggs says he used to tell customers, “‘I can Always get a lower price, but wouldn’t you like to have the proper coverage when something bad happens?’”.
Think about the future and go wide
Smart insurance planning for a business should go beyond the policy in the company’s name and beyond current needs, says Richard Whitworth, head of corporate advisory at Cetera Financial Group Inc., a network of investment advisory firms based in California. Business owners should also think holistically about how their personal and professional insurance needs intertwine, he says, and ensure key personnel have adequate life insurance, among other needs.
They also should not put off covering insurance needs deemed premature, such as coverage that will help minimize disruption in the event of sudden death, disability, or owner departure.
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