Adding Special Coverage to Your Policy
These are specifically-named perils that cover the gamut of risks that the entrepreneur may encounter. Your business will require its own set of special coverages for the risk inherent in your industry. Sometimes these can be added as endorsements to your policy, or you can buy them separately.
Care, Custody & Control
This is a must for the service industry, particularly if you have customer goods in your control at any time during the business transaction. Should some unforeseen accident occur, the insurance will reimburse you (and the customer). This coverage is especially important for service and repair businesses. If you have the customers' goods within your grasp at any time, you are liable for their full value.
This is a clause that should be inserted into a standard property or fire insurance policy. For an extra premium, you can insure against the extra expenses of obtaining temporary quarters, relocating and incidental expenses.
Boiler & Machinery
Is your organization in the snow belt? Take heed--operations can be completely shut down in winter by the death of an aged boiler or machine. Even though the price of a new boiler is within your budget, consider the two months of downtime for the delivery and installation of a new power source. This specialized form of business interruption can provide funds for alternate energy sources while you wait for the new machine to arrive. Depending upon the different provisions you insert, the coverage can also take care of the costs of the new machine.
What, may you ask, is the difference between profit and business interruption insurance? Business interruption covers future profits, while profit insurance covers the loss of goods already manufactured, but destroyed before they could be sold. This specialized coverage is aimed at manufacturing businesses, not service businesses.
When you extend credit to another party, difficulties may arise form the following:
- Closure of financial institution
- Death or physical disability
- Destruction of accounting records
- Political instability in a foreign country
The two major classifications for credit insurance are:
2. Forward coverage. Covers the insured for losses resulting from accounts that were created by sales made during the policy term.
General policies account for the lion's share of the credit policies in force. They cover all debtors falling into given classes of credit ratings. The policy specifies dollar limits on debtors according to classifications set up by Dun & Bradstreet credit ratings. Various levels of blanket coverage can be assigned depending on the size of the firm. Automatic coverage on unrated accounts can also be provided.
Money & Securities
You may need additional insurance to cover those peak cash holding periods during the business day, such as closing, after lunch or payday. Check to see if your policy covers money in transit, money or securities on the premises during business hours and after business hours or money at home (when you're just too tired to go to the bank).
Businesses have the option of purchasing a comprehensive policy insuring against the breakage of plate glass, neon signs and showcases from any source except fire or nuclear reaction. These include weather, riots, vehicles and sonic booms. Determine if this policy, or another, covers damages to stock by broken glass. Some policies include the costs of replacing lettering and other ornamentation.
Electronic equipment can be insured against fire, theft, malicious damage, accidental damage, mechanical breakdown or electrical breakdown. A separate electronic data processing (EDP) policy can cover computer hardware as well as software. Should a fire occur in the computer room, the standard property insurance policy might pay you for replacing a blank, black roll of computer tape; an EDP policy could compensate you for the cost of reconstructing the data. These items and coverages would be above and beyond the normal scope of business property insurance unless you had a comprehensive policy.
A power-interruption endorsement is available on a machinery contract to provide coverage for losses from the interruption of electricity, gas, heat or other energy from public utilities. This is critical for those in the perishable food industry or specialized sectors like an ice warehouse.
Rain insurance is designed to cover losses at a specific percentage of the gross revenues on the last day not affected by rainfall. Swap meets, carnivals, auctions and sporting events might consider this coverage.
In the same vein, many businesses, such as bakeries, dairies and greenhouses require the absolute maintenance of a certain temperature to prevent the loss of vital inventory. This may be of particular interest if you are in a cold mountainous region or a hot climate.
Transportation insurance indemnifies your materials while in transit. Common carriers like UPS are indeed liable for most shipping damages to your goods. They are not liable for unforeseeable "acts of God" like floods or lightening.
Land shipments are most frequently covered by an inland transit policy. This would include a train derailment, but exclude a labor strike or riot. Also excluded are breakage and leakage. The common carrier, however, is generally liable for these damages.
Truck shipments can be covered by a blanket motor-cargo policy. Federal interstate trucking laws require certain minimum coverages that may not offer you full protection.
Fidelity bonds protect the firm from losses incurred by employee theft. It is often difficult to establish losses, and only established losses are reimbursed. These bonds have been used to cover cash losses rather than merchandise losses. Naming only the cashier or money-handlers can be a mistake. It is well known that stolen merchandise far exceeds cash losses. Thus fidelity bonds should be used more widely to cover losses of both cash and merchandise.
A surety bond will protect the firm against losses incurred as a result of the failure of others to perform on schedule. If you are familiar with the construction industry, you know the importance of this insurance contract. Surety bonds, otherwise known as performance bonds, guarantee that a person or a corporation will perform the service agreed upon. The bond guarantees that you have the financial capacity to perform your duties and it also backs your credit. Because your work is guaranteed, you are able to compete and bid on jobs with firms that are considerably larger than yourself. Obtaining coverage may require extensive credit information and collateral. Coverage, however, may place you in the big leagues of your industry.
Title insurance is available for a nominal fee and should always be requested for real estate purchases. In cases in which the title is not conveyed, even though the purchaser thought they had such a title, you are reimbursed.
This is distinct from flood insurance. This covers risks from leaking pipes, sprinkler systems, backed-up toilets, bursting water tanks and a leaking roof.
FAIR Plan Program
The Fair Access to Insurance Requirements (FAIR) plan was established by the federal Housing and Urban Development Act as riot insurance. You cannot be refused insurance even if located in a crime-prone high-violence area. The FAIR Plan provides coverage from looting, fire and vandalism. This special government assistance plan resulted from the riots of the 1960s.
Other Specialized Packages
An "errors and omissions rider clause" is available for owners and managers who are in the business of giving professional advice. A director's and officer's liability policy is available if you serve on the board of directors of a corporation. It may also be available if you sit on the board of a local charity or community group. A garage owner's policy covers any damage to vehicles in your care if you customize or repair automobiles.
There is also a "special-liquor legal liability" insurance for claims that stem from auto accidents caused by patrons who drink too much at a restaurant or bar.
Companies that use or produce chemicals, drugs or industrial pollutants are wise to carry specific endorsements for these hazards.
If you or your employees work or travel overseas, a special worldwide liability policy is available. This may or may not include kidnapping and extortion coverage.
Excerpted from The Small Business Encyclopedia, Start Your Own Business and Entrepreneur magazine ("Needs to Know"). All information is intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an insurance agent.