Do's and Don'ts: Business Insurance
The day you start a business is the day you need commercial insurance. There is more to purchasing commercial insurance than signing an application. By following a few Dos and Don'ts you can make sure you purchase and maintain the kind of insurance you need and can afford while minimizing business risks and losses.
DO find an insurance agent who has some experience with your type of business.
DO shop around for the best price and ask for written coverage recommendations from various agents -- they should be happy to provide you with one for no cost.
DO take notes while you are taking to various agents.
DO check on insurer solvency before purchasing a policy. The following publications rate insurance companies for financial solvency:
Best's Insurance Reports
Moody's Bank & Financial Manual
Duff & Phelps
Standard & Poor's
DO read any proposed policy carefully.
DO buy a policy that will cover the replacement cost of the property. Actual current value coverage could leave you with a significant lack of funds when you have to replace your damaged property.
DO consider purchasing "Building Ordinance Coverage" if you do business in an older building. When rebuilding you will most likely have to upgrade to comply with various building codes and ordinances that didn't exist when the building was constructed.
DO consider purchasing a renter's commercial policy if you lease your business space, even if your lease doesn't require it. The owner's policy probably doesn't cover damages resulting from the negligence of your employees.
If you are renting, DO make sure that there is a mutual waiver-of-subrogation clause in your lease. This should keep the landlord's insurance company from suing you to recover the money it has paid to the landlord.
DO confirm that your independent contractors carry their own workers' compensation and liability insurance for their own employees. If they get injured they may be considered your employee, and if they injure one of your customers, your policy may not cover it.
DO keep a list of all of your business property both at work and somewhere off the premises; you will need it for comparison purposes if you suffer a loss.
DO inform your agent of changes to your business, so that your policy always provides adequate coverage.
DON'T hire an agent who wants to sell you a package and refuses to tailor a policy to your needs.
DON'T hide unusual risks from your agent. The insurer could later claim that you made misrepresentations and you probably won't get the kind of coverage that you need.
DON'T buy a policy that is significantly lower in cost than all of the others -- the company could be unstable or you may have received a quote that doesn't include everything that you need.
DON'T accept a policy without making sure that it covers all of the risks of your business.
DON'T underinsure to get a reduced premium. If you do, you could end up covering around 80 percent of your property replacement value because of a co-insurance clause in your policy.
DON'T agree to buy an insurance policy that covers the landlord's liability as well as your own, if you are renting. This is usually considered unreasonable; try to negotiate out of it.
DON'T depend on your employee's automobile insurance providing coverage for damages incurred while the employee is using a personal vehicle for your business purposes.
DON'T assume that your theft policy will cover the personal equipment of your employees.
DON'T assume that your homeowner's policy will cover business-related damages, if you run your business out of your home. There may be exclusions for business-related property and injuries in your homeowner's policy.
DON'T exaggerate the extent of your damages. You could be accused of engaging in insurance fraud.