Insuring a business: Agents explain the basic requirements and their own recommendations for business insurance

Monday, April 19, 2010
Rob Johnson, right, insurance agent with The Daniel and Henry Co., discusses commercial insurance with Stuart Arthur, controller of Ceramo Co. in Jackson. (Fred Lynch)

Starting a new business? Make sure you have the proper insurance in place first.

"The law requires certain types of insurance in order to do business with other companies," says Rob Johnson, agent and consultant with The Daniel and Henry Co. of Cape Girardeau. He notes that many clients and vendors will ask for certificates of insurance, so it's important for businesses to have proof of coverage. Here are six things to keep in mind when considering a business insurance policy, says Johnson:

1. Workers' compensation insurance. In Missouri, any business that employs five or more people is required to have workers' compensation insurance, says Nathan Brown, insurance agent with W.E. Walker-Lakenan of Jackson. Some industries, like construction or contracting, require workers' compensation policies even if there's only one employee.

"Even if you only have one employee, you have a major risk possibility should he be injured ... whether you have workers' compensation or not," says Brown. Unfortunately, this is usually the most expensive type of coverage and the one people are least likely to abide by, he says -- but businesses caught without a required policy could be fined or shut down. Brown recommends workers' compensation coverage for all businesses, as even those not required to have this insurance must provide benefits, medical payments and just wages if an employee is injured. Part of being a prudent employer is obtaining proper coverage before you're stuck with a huge bill or even a court case, Brown says.

Johnson adds that employers should make sure workers' compensation information is classified correctly and with proper payroll projections, as this information is audited each year.

2. Building coverage. Make sure your business building is valued properly in case of catastrophe, such as a fire, says Johnson. The value should be what it would cost to construct a new building, not what the loan amount is, he adds.

3. Business personal property. Know the value of everything in the building in case loss occurs, says Johnson. With this coverage, you have two options, says Brown: replacement cost basis or actual cash value basis. With the cost of labor, materials and inflation, Brown almost always suggests a replacement cost basis because most items have probably depreciated in value and will take more money to replace. Actual cash value, however, does take into account the depreciation amount.

4. General liability. Every business should have basic general liability insurance, say Brown and Johnson. Businesses must have proof of at least a $300,000 liability limit, though it may be up to $500,000 or $1 million. Both Brown and Johnson recommend at least a $1 million policy; Brown adds that the difference in premiums for a small business is not large, and with the higher costs of things like medical bills, it's best to take a higher coverage.

Additionally, any business that manufactures a product must have product liability insurance, says Brown.

5. Umbrella liability. Johnson recommends an umbrella policy of at least $1 million, though with some businesses the minimum should be as high as $10 million or $20 million.

6. Risk management and safety program. Safety forms, manuals and policies should be in place and updated annually, or as soon as changes in the business occur, says Johnson. "It is important to look for an insurance agency that can provide free risk management and claims services," he adds.

When shopping for commercial insurance, Johnson says a good agent should act as an adviser who understands your business niche and can help you find the best coverage and the best price. He says it's also important to interview your potential insurance agent -- ask how long the company has been in business, ask about their solvency committee, and ask for a few references.

"If you find someone who's an independent agent, they have the most options for you," says Johnson. "Insurance is very competitive, so we all work very hard to find the best possible premiums."

But remember that cost should not always be the most important factor when it comes to insurance: "Make sure the agent is not just looking for the cheapest price," says Brown. "It's just like when you go out to buy a car or go to a restaurant or buy clothes -- cheaper is not always better. A lot of times you get what you pay for. Try to find somebody who knows it, who you can trust they know what they're doing."

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