9. Co-insurance Clauses
Rodman warns that another commonly misunderstood part of many insurance policies is co-insurance. Co-insurance clauses can create penalties if you are not insured to an adequate value at the time of a loss.
Rodman gave this example to help clarify: Suppose you own a building that is valued at $1 million. If you have a co-insurance value of 90%, that means you must insure the building for at least 90% of its value, or $900,000, in order to collect on any loss in full. If you only insure the building for $450,000 -- half of the required co-insurance amount - then you can only collect on half of any loss. So if you had a loss of $10,000, and had only insured the building for $450,000, then you could only collect $5000--half of the total loss amount--since you had only insured the building for ½ the co-insurance requirement.
"Most policies are subject to co-insurance," Rodman says. "But it can be waived if the amount of coverage that you' re buying is sufficient." So check your policy for this kind of clause, and if you cannot get the clause waived, then make certain that you have bought an adequate amount of insurance to cover the value of your property. That way, you can avoid incurring any co-insurance penalties.
10. Vet Your Salesperson (And hire help if you need it)
Like it or not, the salesperson you speak with at a given insurance company may not be all that knowledgeable about the specifics of your policy, let alone what policies are best for you particular business. The simple fact of the matter is, an insurance agent' s job is to sell insurance policies--not necessarily to sell coverage that' s best for an individual business. So, as Gander explains, "it' s worth the time to go out of your way to find someone good." Rodman agrees: "Many agents and brokers are excellent at what they do. But others do have technical weaknesses. Not everyone is an expert on the technical details. There' s a real variety as to the depth of salespeoples' technical expertise." And it' s precisely those pesky technical details that can cause you problems down the road.
How do you make sure you get the best advice on your policy? One way is to find out what certifications the agent or broker has. Some common designations to look for include CPCU (Chartered Property Casualty Underwriter), CIC (Certified Insurance Counselor), AII (Accredited Advisor in Insurance), or ARM (Associate in Risk Management). Another way is to seek recommendations from other CEOs in your industry--and when you' re asking people about their insurance carriers, make sure you ask if they' ve ever had to make a claim before, and how it was handled. A third option that Gander recommends is to belong to an industry association. "Associations will frequently endorse certain insurance programs," she says. "At least that way, you know that another party has looked closely at those company' s offerings." And finally, a fourth option--in many cases the best one, if you can afford it--is to hire an insurance advisor or consultant to review your business and help determine your coverage needs. (Make sure they don' t sell insurance, so that they aren' t biased toward any particular company.)
11. Limitations on How Claims are Paid Out
Read the fine print on your policy and screen carefully for any mention of limitations on how your claim will be paid out, warns Gander. This is particularly the case with business interruption/extra expense insurance. If you experience significant losses, as so many business affected by the September 11 attacks did, you' re probably going to need to get as much of your claim in hand, as soon as possible. But some policies specify a schedule of payments such that you only get a small percentage of the full amount up front. "For example, there may be a payout schedule where you only get 40% of the payment the first month, 40% the second month, and 20% the third month," she explains. She recommends trying to eliminate all such limitations from your policy.
12. Other Types of Insurance
Other types of insurance to consider, depending on your business: (Please note: this is only a fraction of the types of insurance available.)
- Lease-Hold Insurance (covers the difference between your old and new rent amounts if you lose your old building/office. Covers the unexpired portion of a long-term lease.)
- Accounts Receivable Insurance (covers your accounts receivable should you lose all of your receivables records and are hence unable to collect)
- Valuable Papers Insurance (covers the coast to replace crucial documents that you lose and do not have duplicates of. Includes property titles, deeds, etc.)
- Boiler & Machinery Insurance (covers damage from some event that impacts your building' s boiler and/or electrical apparatus. Often overlooked because business owners don' t realize these things aren' t covered by property insurance.)
- Convention Cancellation Insurance (covers the loss of revenue resulting from the cancellation of conventions, seminars, conferences, etc. Best for companies who derive a significant amount of their annual revenues from such events.)
- Key Man Insurance (essentially a life insurance policy for a person or persons whose death would result in severe financial difficulty for the company. Payment in the case of death goes to the company itself.)
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More follow-ups related to the Sept. 11 attacks:
Disaster Recovery Planning 101
Helping Employees Cope
Resources for Affected Businesses
