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Keep your coverage current as 2008 gets underway

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By Roy Solomon

There are many challenges to operating a business – from office space rent increases to changing tax laws. Each year there are new issues to be dealt with, and concerns about how to maintain as efficient a bottom line as you can.

In Massachusetts, the health care legislation has caused some challenges for employers who did not previously provide this service. But beyond how health care (and auto insurance rates) may affect the operation of your company, there are other insurance matters that require a long look.

First, although you can probably always think of other places you’d rather spend money, it is almost never a good idea to consider a decrease in insurance coverage. In Massachusetts, there have been some concerns over an economic slowdown, particularly in the real estate and related sector. But, although it is tempting to look at insurance as a place where you can cut costs, it is not advisable to do so.

Here’s the real question you should ask yourself. Is the insurance coverage that you had in 2007 enough to protect you in 2008? It’s always a good idea to look at this question as the year approaches; but, even if it’s April when you take a look, that’s still better than ignoring the issue. Even if nothing within your operation appears to have changed, it’s a good idea to take a long, critical look at your coverage. Just as it is recommended that you have a physical examination each year, your company should have an “insurance exam” to see if your coverages are where they should be.

The annual checkup approach ensures that you’re not caught off guard, particularly in the event of a natural disaster or fire. And it also makes sense if you’ve been fortunate enough to experience growth during the past twelve months. The liability insurance you took out when you first started your business a few years back won’t protect the multimillion dollar enterprise it may have become.

Here are some areas you should look at:

  1. Adequate business property coverage: the right dollar amount will insure office equipment, inventory, the building you own and all tenant improvements made. The rule of thumb is to calculate the cost of getting your business back in action if interrupted by a fire or natural disaster. By determining the worth of your property, you establish the coverage necessary to bring it back from the ashes…sometimes literally.
  2. Business interruption protection: If a fire, flood or other disaster resulted in the interruption or suspension of your business, would you have enough funds on hand should it take months to re-open your doors? If you do not have that coverage, look into what it would cost and give it serious consideration. It may be more that you can’t afford not to have it than that you can’t afford it. What many smaller business owners don’t take into consideration is the importance of replacement cost coverage. The price tag on that office furniture and computer equipment purchased a few years ago is likely quite a bit larger today. In general, it pays in the long run to periodically review the limits of your insurance coverage. The last thing you want is to come up short when you need it the most.
  3. Health insurance: Between the new Massachusetts legislation and skyrocketing health care costs, be sure that your expenses are up to date. You may have plugged in your payroll and expenses last year, but even a time period as short as a few months can translate into larger health insurance costs. You may have increased some of your benefits or taken on a couple more employees. It all adds up.
  4. Liability coverage: Are you reasonably protected in the event of a lawsuit? These could occur from accidents on your property to a product or service that causes damage to a client. Liability insurance can pay for itself many times over. If you are in a business where it seems appropriate. It also protects against a slew of other claims, including false advertising, libel and slander.
  5. The “umbrella” policy: Umbrella liability protection is another “beyond the basics” coverage that makes the difference between your staying in or going out of business should a lawsuit verdict go against you, a sister company or separate location. In short, an umbrella will cover you should a verdict exceed the limits of your liability protection. Umbrella coverage kicks in when the top limit of your basic liability coverage is reached.
  6. Employment practices insurance: A fairly new addition to the mix of coverage a business owner should consider, employment practices insurance is there to take care of legal defense and pay a settlement or damages should an employee sue your company for sexual harassment, wrongful termination, job discrimination or any number of other onthe- job indiscretions.

For those starting up a business this year, there are several factors to take into account. As previously mentioned, there is the healthcare insurance issue. Then, look at insurance requirements for new leases. Requirements are all general in scope and may vary from building to building. If you’re in the market for rental space, focus less on the dollar amount of the lease and more on whether its insurance requirements are reasonable. The advice of an attorney could come in handy when negotiating on a lease agreement.

And one last element to take into account – business owners, regardless of how small their operation may be – should never confuse personal coverage needs with their business needs. Make sure you’re working with a reputable agent who understands the constantly changing coverage requirements of your business.

(Editor’s note: Roy Solomon is a principal with Amity Insurance Agency, Inc., based in Quincy, MA. (800) 940-4010).