Welcome to this article on Operational Liabilities and Insurance. Businesses encounter many risks in the course of their operations. As a business owner you want to be prepared and be in a position to mitigate risk. We will discuss some of the operational liabilities and insurance requirements as a business entrepreneur. Insurance is always a necessary business expense to protect you from hazards and those occurrences that may interrupt your business. You will also need employee related insurance such as workers' compensation insurance and depending on the size and capabilities of your business you may want to provide health insurance, life insurance or disability benefits for your employees. Insurance is used to protect your livelihood from liability.
Surveys by the independent insurance agents of America indicate that 60% of small businesses are inadequately insured. Often times businesses are underinsured because they begin as a small entity and as they grow the owner forgets to increase their insurance. Every small business should have the basic small business policy which is called a business owner policy. These policies cover loss of income, off-site liabilities, errors and omissions, projections of business structures, on site liabilities, personal injury and advertising injury. Is important to maintain insurance coverage to protect your personal assets. In general business insurance falls into two categories they are property coverage which covers your business structures and possessions against loss and damage caused by risks. The second is liability coverage which covers you if you become legally obligated to pay money to another person for bodily injury or property damage caused by your business.
In order to determine what type of insurance you need you must first perform risk assessment. A risk assessment is the process of determining the risk your business has and what you should do to mitigate that risk. A risk analysis will help you determine what insurance coverage you require. To perform the risk assessment you determine where losses can occur in your business and you identify the employees, property, customers, or possible conditions you will need to ensure to continue to operate.
There are four ways to handle risk elimination, transference, retention, and reduction.
Elimination of the risk you eliminate the source of a potential risk. Such as discarding a faulty piece of equipment.
Transference of risk you transfer the risk to another party such as an insurance company.
Retention of risk means that you retain of risk and understand the potential for the risk, but you understand the cost of insuring against the risk is higher than you can afford or are willing to pay so you assume the consequences of the risk.
Reduction of risk is a form of risk management where you reduce the rate of risk by eliminating certain elements of risk which enables you to reduce the likelihood or the severity of loss.
Business entrepreneurs must weigh the cost and benefits against potential risk and determine the best plan for their application. Vehicle related liability is the greatest source of personal liability the second source of liability is related to building occupancy and includes accidents such as trip and fall, fire damage, or damage caused by workers. When you have determined what type of insurance you need contact an insurance agent. These agents may be chartered Life Underwriters or chartered property casualty underwriters. An insurance consultant is an expert in insurance coverage and will provide you an objective analysis of your wrist and insurance needs. Follow their advice but use the information from this article to help make an informed decision on your needs based on your own personal risk analysis.
Let us discuss the Business Owners Package Policy (BOP) in detail and then we will discuss other additional types of insurance you may need as an entrepreneur. The Business Owners Package Policy (BOP) was created specifically for small businesses, it covers; business policy, covers business property and equipment, loss of income and extra expenses, and liability.
A Business Owners Package Policy (BOP) is a self-contained, insurance package policy that provides broad coverages for apartment buildings, offices and retail stores. Each policy includes mandatory property and liability coverages and offers optional coverages. Many standard conditions and exclusions apply. The Business Owners Package Policy is modeled after the commercial package policy program that larger companies buy using the same wording, coverages and design are followed. Coverages include commercial property coverage and commercial general liability coverage, along with optional crime and machinery coverages.
The types of business eligible for a Business Owners Package Policy include:
Building owners and business operators who are tenants, residential condominium associations and office condominium associations. Service and processing risks are newly eligible for coverage (previously, mercantile risks involving retail sales of merchandise were eligible, but risks involving service or processing were not eligible).
Service or processing risks which do not exceed 15,000 square feet and do not have annual gross sales in excess of $1 million, provided that no more than 25 percent of their gross sales is derived from off-premises operations.
Mercantile risks which do not exceed 15,000 square feet and do not have annual sales in excess of $1 million.
Office buildings which do not exceed six stories in height and do not exceed 100,000 square feet in total area (incidental mercantile, service or processing risks which do not exceed 15,000 square feet, and apartments within the office building are permitted)
Apartment buildings which do not exceed six stories in height and do not have more than 60 dwelling units (incidental mercantile, service or processing risks which do not exceed 15,000 square feet, and incidental offices are permitted)
The business owner's insurance program is designed to provide coverage to businesses with moderate insurance exposures. It excludes those with risks that do not fit the intended exposure pattern. These include: bars, restaurants, automobile dealers and all types of automotive repair and service operations, banks and all types of financial institutions, places of amusement, contractors and wholesalers.
The Business Owners Package Policy must include the policy declarations, the common policy conditions, a standard or special property coverage form, the business owners liability coverage form, and endorsements as required.
This policy provides you coverage for legal liability damages due to bodily injury, personal injury, advertising injury, or property damage. There are many exclusions to the Business Owners Package Policy you should beware of an plan for as an entrepreneur use include liabilities for liquor liability, pollution liability, professional liability, bodily injury or property damage that you cause on purpose, your obligations under worker's compensation, or medical expenses.
Your policy will also include limits of insurance including the liability for medical expenses as a combined single women which is insured on a "per occurrence" basis. There is all saved a per person limit for medical expenses and fire legal liability limiting the damages per fire.
You may also want to purchase coverage for Professional Liability. Professional liability covers business owners who provide advice for professional services and the customer pays for when the customer is unsatisfied with the results and sees the business owner for professional negligence. Anyone who provides professional services to clients such as brokers, insurance agents, architects and engineers, attorneys, or advertisers would be in this category.
We will now take a look at some other aspects of business insurance.
Commercial general liability insurance is used to protect business owners against liability claims for bodily injury, property damage, or personal injury. This can cover several specific areas of a business which include:
Premise and operations, this type of coverage covers any bodily injury or property damage that occurs on your property and is the result of your business.
Products or completed operations, this type of insurance coverage covers you for bodily damage or property damage that occurs away from your business location but is caused by your product or completed work.
Commercial general liability is used for larger companies based on their operations, products, and completed operations. This type of insurance provides coverage for risk and exposures resulting from injuries or damage suffered by members of the public, customers, or tenants. This type of insurance covers businesses where the nature of the business may possibly expose large number of people if an accident were to occur.
Business insurance is important for you and for your customers. Insurance is used to transfer the risk you can afford such as an insurance premium to cover the risks you cannot afford such as a workplace accident. An insurance agent will be able to assist you to refine the options and every entrepreneur should understand the basic packages. These are the most basic forms:
Typical Small Business Insurance Options
Business Property Insurance
Worker's Compensation Insurance
Employment Practices Liability Coverage
Business Property Insurance is the most general type of insurance and protects you from the broadest variety of risks. This includes loss of buildings, equipment, property, or loss of income. You may want to acquire all risk policies which are structured to cover instances such as equipment breakdowns, computer hardware or software issues, or loss of valuable records.
Liability Insurance or Comprehensive General Liability (CGL) policy provide your business protection to third party liabilities which includes fires for leased facilities, protection for products you have built or completed, medical expenses, and general liability for your building such as slipping and falling on the floor, and advertising and slander injury protection. Liability insurance covers three situations these include negligence, statutory law, and assumption by contract. Every business has the potential for being sued for a negligent act. You should determine your exposure to in your risk assessment and obtain the appropriate coverage. As a business owner you can be held responsible for the actions of one of your employees even if you have taken steps to prevent it from occurring. Statutory law liability covers legal obligations on laws which have been enacted which create a legal obligation for your compliance such as workers' compensation. An assumption by contract liability is used in hold harmless agreements. Where you are required to maintain liability insurance and hold another individual harmless for any accident that occurs.
Worker's Compensation Insurance is a mandatory form of insurance if you have employees. If workers are injured at your place of business you are responsible for payment for their injury and subsequent wage loss. These cost may be substantial and not a risk you can afford to take on uninsured. Worker's compensation insurance is mandatory for every business. If some businesses try to get out of carrying it. This is a very bad idea and state employee and labor departments examine payroll taxes to find businesses that do not carry workers compensation coverage. These businesses receive fines which are substantial and put some small businesses out of business.
Vehicle insurance may be necessary for any of your company vehicles to cover liability, comprehensive insurance, collision, and uninsured or underinsured motorist. Comprehensive insurance covers all losses except those caused by a collision. Collision insurance covers losses due to the collision of the vehicle with another object. The third component of the vehicle insurance as medical payments. It covers the occupants for medical, dental, surgical, ambulance and funeral services. Vehicle related liability is the largest single source of personal liability. Vehicle liability includes property damage to other vehicles, injury to individuals in other vehicles, injury to pedestrians, or damage to other property.
Medical Insurance premiums can be deducted as a business expense if your business is incorporated. Medical Insurance coverage comes in two forms major medical and comprehensive coverage. Major medical coverage is used for hospital and recuperation cost. Comprehensive coverage is used for hospital and outpatient treatments such as office visits, testing, and procedures.
Health Insurance may be required for your business under the Affordable Care act businesses with 50 employees or fewer can offer the Small Business Health Options Program (SHOP) though healthcare.gov.
Life Insurance reduces risk in the event something occurs to you or if you are in business as a partner. Life Insurance comes in two forms whole and life. Whole life policies are design to pay beneficiaries the amount of the policy in case of death. This policy may have some cash value if terminated. Term insurance pays a benefit if an insured person dies during the term of the policy period if a person does not die, there is no remainder value of the policy.
Disability insurance covers individuals to maintain their lifestyle in the event of the disability which renders them unable to perform the duties of their job. For small businesses disability insurance can be used by the owner to hire a manager to run business operations in the event they are disabled. It also allows a partnership to pay off a partner if they are disabled and unlikely to return to work. If you purchase these type of policies inquire the period of time you must be disabled before payments are made, the income per month, and the number of monthly payments being made.
Employment Practices Liability Coverage is less used but is becoming increasingly popular to protect against the threat of wrongful termination or sexual harassment.
Excess Liability Coverage insurance coverage helps protect over and above the maximum limit your insurance carrier will underwrite. They can be purchased as a commercial umbrella or additional cost to your business package.
The Consolidated Omnibus Budget Reconciliation Act (COBRA)
The Consolidated Omnibus Budget Reconciliation Act gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time. If you have 20 or more employees you are required by law to provide COBRA. COBRA is provided to employees who have been terminated, laid off or resigned. It is all so available for employees who have had their hours reduced, children of employees who've lost their dependents status, widowed, divorced, or separated spouses and employees and employees eligible for Medicare. Employees are eligible for this benefit for up to 36 months.
Crime coverage is insurance for your business which covers theft, bad checks, vandalism, or employee dishonesty. Crime coverage is becoming increasingly important in the business world. You may want this coverage based on your potential for this type of loss or based on the crime rate for your area. Based on your risk assessment, some businesses have a higher potential for this type of loss.
Business Interruption Insurance
Business Interruption Insurance is an expensive for of insurance which is not widely used because of the cost. Business interruption insurance provides coverage for catastrophic shutdowns, intermediate needs, and short-term delays depending on the coverage. This type of insurance helps with business continuity.
Group Life, Disability, and Health Insurance for Employees
These types of insurance are coverages you may want to provide as a business owner as you grow. They will help employees replace income in the event a sickness or a disabling health problem and builds goodwill for your company. By providing these types of insurance you will be an employer of choice and show your employees that you value them. These three group policies (life, disability, and health) may be provided to employees tax-free and you may be able to deduct the costs of premiums.
Proactive things you should do as a business entrepreneur for insurance coverage.
Acquire an insurance agent during the startup of your business and the proper policies in place.
Try to use the same insurance agent for all of your insurance requirements to develop economies of scale.
Routinely make checks of your work environment and use documentation to maintain a safe environment.
Ensure that employees are part of the process in keeping the work environment clean and safe.
Following is a list of things to do related to operational liabilities and insurance to ensure stability and proper coverage:
Consider using one single insurance agent who can handle all of your insurance needs.
Increase all your insurance coverage as your business grows.
Include excess liability "Commercial Umbrella" coverage for your business.
Consider a health insurance policy to recruit and keep good employees.
Use a broad form of business property insurance.
Include any tenant improvements in your property insurance policy.
Carry employment practices liability coverage as mentioned earlier.
Increase all your insurance coverage as your business grows.
Following is a list of things you should not do related to operational liabilities and insurance:
Deal with insurance providers with substandard ratings.
Consider self-insuring any part of your worker's compensation risk.
Overlook ongoing employee safety training.
Permit your insurance policies to lapse for non-payment of premiums.
Summary Reminders and Takeaways
No good entrepreneur would go without the right insurance coverage. As an entrepreneur you must plan for major loss or potential disasters as you conduct business. The benefits of a solid insurance package cannot be understated. You should take a look at your business as a whole and assess your potential risk. Determine how you want to handle these risks using the risk methods we describe before you approach your insurance agent. Understandably pricing is important but coverage comes first. In order to get the best quote you need to determine what types of insurance are necessary for your business based on its operations, size, or scope. Businesses encounter many risks in the course of their operations. As a business owner business problems will surface and a risk assessment and proper insurance will protect your assets and help you stay in business. As a business owner you want to be prepared and be in a position to mitigate risk. In order to determine what type of insurance you need you must perform risk assessment. Remember there are four ways to handle risk elimination, transference, retention, and reduction. At a minimum you need these types of insurance: Business Property Insurance, Worker's Compensation Insurance, Employment Practices Liability Coverage, Liability Insurance, and Health Insurance. Seek out an experienced insurance agent that understands your needs. You are not required to be an expert on insurance but you should understand how to determine the best coverage, for the best price, and be able to have informed discussions with your insurance agent. Insurance coverage is not a risk the entrepreneur should take lightly and is often required by law. Always ensure the business you've worked so hard to develop.
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