Know Your Insurance Needs for risk management
As a basic requirement of a well-managed business it is important that a complete risk management program be developed and implemented. One element of risk management is insurance coverage. Some coverage is compulsory, such as workers' compensation; some may be required for contractual reasons, such as fire insurance required under a bank loan agreement; and some is carried because of the risks inherent in the business.
There are many types of insurance coverages. The following description of each is intended to provide an overview of the most common types of coverage.
Commercial property insurance The basic form of this insurance covers losses from fire, explosions, windstorms, hail, vandalism, and several other perils. The broad form includes everything covered by the basic form, plus falling objects, weight of snow, water damage, and some causes of building collapse. Optional coverages include an inflation escalator clause, replacement of destroyed structures at the actual replacement cost, and coverage of finished goods at their selling price instead of their cost.
Comprehensive crime This insurance covers property theft, robbery, safe burglary, premises burglary, and employee dishonesty. In the case of employee dishonesty, the company purchases a fidelity bond, which can either cover a named person, a specific position, or cover all employees. Some policies will also cover ransom payments.
General liability insurance This insurance covers claims involving accidents on the company's premises, products, services, agents, or contractors. an umbrella policy usually applies to liability insurance, and provides coverage after primary coverage is exhausted. An umbrella policy normally has few exclusions.
Workers' compensation This insurance provides medical and disability coverage to workers who are injured while performing duties related to their jobs. The insurance is mandatory, the employer pays all costs, and no legal recourse is permitted against the employer. There are wide variations in each state's coverage of worker's compensation, including levels of compensation, types of occupations that are not covered, and the allowability of negligence lawsuits.
Comprehensive auto liability This insurance coverage is usually mandatory and requires minimum coverage of bodily injury and property damage.
Business interruption This insurance allows the company to pay for its continuing expenses and in some cases will pay for all or part of its anticipated profits.
Inland marine insurance This insurance covers company property that is being transported. Examples of covered items would be trade show displays and finished goods being shipped.
Ocean marine and air cargo insurance This insurance covers the transporting vehicle (including loss of income due to loss of the vehicle), liability claims against the vehicle's owner or operator, and the cargo.
Group life, health, and disability insurance There are several types of life insurance; split-dollar life insurance covers an employee and its cost is split between the company and the employee, key person insurance covers the financial loss to the company in case a necessary individual dies, and a cross-purchase plan allows the co-owners of a business to buy out the share of an owner who dies. Health insurance typically covers the areas of hospital, medical, surgical, and dental expenses. Disability insurance provides income to an individual who cannot work due to an injury or illness. The disability insurance category is generally subdivided into short-term disability (payments while recovering one's health following an injury or illness) and long-term disability (continuing payments with no anticipation of a return to work).
Boiler and machinery insurance Just as the name implies, this insurance covers damage to the company's boilers and machinery, as well as payment for injuries caused by the equipment. Boiler and machinery insurance providers normally review the company's equipment and issue a report recommending safety improvements.
Directors and officers insurance This insurance provides liability coverage to corporate managers with respect to actions taken while acting as an officer or director of the corporation.
Because business risks and needs change over time I cannot stress strongly enough how important it is to periodically review your policies and consult with your insurance agent to insure your coverage will be adequate in the event a claim becomes necessary.