Buying Property and Liability Insurance - Things to Consider
Insurance companies decide the types of risks they will accept. This is referred to as "underwriting" and is the process by which an insurer selects and classifies risks according to their degree of insurability.
The premiums charged for business insurance vary widely from company to company. It pays to shop around to obtain the best value for your insurance dollar. Insurance premiums are dependent on a number of factors, including location, age and type of building, use of building, local fire protection, choice of deductibles, application of discounts, and amount of insurance you purchase.
It costs a certain amount of money to process any claim. To discourage people from filing small claims, which can cost more to process than to pay, an insurer will reduce the premium by a certain percentage in return for a given deductible. Deductibles reduce costs because you pay the first $250 or $500 of every loss.
Since you are actually "self-insuring" for the deductible amount, you should ask if the savings is worth it. It is a good idea to get quotations for various deductibles, before making your selection. Deductibles may apply separately to each building covered or to personal property in each building, with an aggregate deductible for any one occurrence.
What will it really cost to replace your building in the event of loss from a fire or tornado? Are there building upgrades that are required by law when you rebuild (i.e., fire sprinklers may need to be installed) and what will they cost? Does the policy you are considering cover the extra cost to meet current building code requirements?
Business Personal Property
Every business owns some personal property that could suffer a loss. What would it cost to replace all of your furniture, fixtures, inventory (minimum and maximum values during the year) and building upgrade (if you lease)?
Business Interruption Coverage
You need to consider how long it would take to restore your business operations in the event of a fire. Where would you temporarily resume operations? What expenses could you discontinue while repairs are being made?
You should check your lease and other legal contracts you have signed to see what and how much liability coverage the contracts require you to carry. You may want to get price quotes for limits of insurance beyond what you are required to purchase according to your contractual obligations, so you can see what higher amounts of coverage will cost. You may decide to either buy all the liability coverage you can afford or you may only want what is required. Many people buy what makes them comfortable for a price they can afford.
Report Your Loss History Accurately
Failure to accurately report past losses could allow an insurance company to legally deny your claim and not pay you for the loss. It is important to disclose any lawsuits in which you've been named as a party and for which insurance coverage was provided. Also, be sure to include any property claims you've had such as those for fires, thefts, or vandalism.
Discounts may be available if you have sprinklers, burglar alarms, and security cameras. Make sure that you tell your agent about any upgrades or renovations done to the building, particularly to the roof, heating, electrical and plumbing systems.
Your Insurance Agent
Your insurance agent should fully review the types of business property you own and use to discover what kinds of property insurance you need. There is no sure answer about how much liability insurance to buy for a particular business. You should consider the degree of risk in the business itself. Your insurance agent can help you determine a satisfactory limit of coverage for your specific business.
Ask your agent to explain anything about the policy you do not understand and to answer any other questions you might have. You should know what the policy does and does not cover, including any deductibles or coinsurance requirements, exclusions, exceptions, or limitations, how and when to make a claim and how claims are processed.