It’s always important to find ways to reduce your business insurance premiums however business professionals should not fall into the trap of focusing on this aspect exclusively. The reason you purchase business insurance is to make sure that your business is not strained financially by an unexpected loss. Here are some important coverage considerations that should be reviewed.
It is common for insureds to have contractual obligations where one party must add the other party as an “additional insured.” For example, landlords/building owners will frequently require, as part of the lease agreement, the tenant to name the landlord as an additional insured on the tenant’s liability policy.
Adding an “additional insured” can be done by an endorsement to the tenant’s Commercial General Liability policy. In many situations, tenants either forget to add the landlord to their policy or overlook this contractual requirement in their lease agreement. This oversight could lead to a breach of contract claim which would not be covered under the tenant’s liability policy. The tenant would then have to deal with an uninsured loss. For this reason, it would be best to have your insurer add a blanket additional insured endorsement which would automatically cover any contractual lease obligation.
2. Report Claims ASAP
The majority of business insurance policies contain a requirement to report an accident, injury or occurrence that might result in a claim as soon as possible. In the event a potential claim is not reported in the timeline stated in your policy, then the liability claim coverage could be denied by the insurer. Insurance companies require this quick response so that a prompt investigation into the details of the claim can commence.
Timeliness of reporting puts the insurer in a better position to defend a claim successfully and make an early determination as to whether or not the claim is covered or not. Endorsements are available to add to your policy which would have the claim reporting responsibility fall specifically to the owner or officer of the company.
3. Business Interruption Insurance
The importance of business interruption insurance cannot be discussed enough. It is one of the most complicated types of business insurance to understand but one that requires the most attention to detail. Property Insurance policies only cover direct losses to insured property. In many cases, damage to insured property can lead to an indirect loss. An indirect loss is a type of loss that results from a covered cause of loss but is not caused directly by it.
Making sure that businesses obtain the proper amount of business interruption insurance is so important because these types of losses can far exceed the direct physical loss to property. It is a fact that a large percentage of businesses that fail following a catastrophic loss did not carry adequate business interruption insurance.
4. Review Property Insurance Values
An area of business insurance risk management that deserves more attention than most business owners give to it is the reporting of adequate property insurance values. It is probably one of the most common causes of uninsured losses. The majority of property insurance policies contain a co-insurance provision that requires the insured to carry insurance equal to or greater than 90% of the property’s replacement cost value.
Failing to insure to this co-insurance amount will cause the insured to become a co-insurer with the insurance company and therefore receive a reduced payment. The reason for the co-insurance clause is to promote the purchase of adequate property insurance values by penalizing the insured if adequate values were not purchased. The formula below determines the amount of the loss an insurance company will pay.
[Amount Insured divided by Amount Required] x Loss = Amount Paid
As one can see, maintaining insurance to value is extremely important. Property such as buildings and equipment need to have their replacement cost value and appraisals updated on an annual or semi-annual basis to make sure the values are sufficient.
5. Buy Adequate Liability Insurance Limits
Determining the right amount of liability insurance to carry can be a tough task for most business professionals. Every business owner needs to control business insurance costs while at the same time protect the business from catastrophic losses. Even though catastrophic losses rarely occur, having adequate limits of liability insurance can protect the financial stability of a business. All businesses should carry a minimum limit of $1,000,000 liability insurance. Some professionals believe that $5,000,000 liability limits should be the minimum amount purchased.