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Reviewing your Business Insurance

Looking at Ways to Prevent Problems While Saving Dollars

An old adage is that a doctor who treats himself has a fool for a patient. Perhaps in reading the title of this article, you would expect this to be an appropriate application of the adage.

However, as people are responding more and more to the online and telemarketing insurance companies, we are not about to suggest you do the same with your business insurance. For just like the right attorney or banker can help to make your business more profitable, the right insurance agent can do likewise.

When you see a person fall on the sidewalk in the parking lot of your business, or the sheriff's deputy walking in the door with a subpoena, the time has already passed as far as being able to question the adequacy of your insurance. Just as you would not put all of the responsibility of your finances in the hands of a banker, you should not place full responsibility of your insurance in the hands of your insurance agent.

My Grandfather's business was struck by lightning during a severe storm back in the late 1960's. The store, which occupied over 40,000 square feet, was a total loss. The only salvage was an off site warehouse, and the receivables books that were stored each night in an in-the-floor vault.

When it came time to settle with the insurance company, my grandfather found that the policy stated coverage of some $100,000 less than what he thought he had purchased from the agent. Of the local agent and my grandfather, who was at fault? My grandfather for failing to read the policy or the agent for failing to review the policy with the client?

It did not matter because there was no way to substantiate the claim by either. You can however, be sure they both learned a lesson. Not wanting to experience a similar situation, what can you do about your insurance to avoid a problem and save yourself from spending unnecessary dollars?

The first is to invite your insurance agent to take you to lunch. (I think since you are the customer, the agent should be paying for the meal) Before you meet, look at your policy, section by section, making note of the areas you do not clearly understand.

You need to be sure about your insurance coverage from several points. The first area a business should review is the amount of coverage for the inventory. Many policies have a seasonal adjustment. For example if you have purchased $100,000 in inventory coverage, and there is a 20% seasonal adjustment in the policy, make sure that this means you are covered up to $120,000 and that it has no time limit. Many businesses will spend more than necessary as they allow this seasonal adjustment to be there "just in case". A business that is planning their inventory level by way of an open to buy, can often save dollars by not having to have the "just in case coverage".

The policy you have purchased probably has coverage for your computers and fixtures. Like most businesses, you have probably depreciated these assets over time. While depreciation, as an expense item increases your profits, you want to make sure that the dollars you would receive in the event of a loss are not tied to the depreciated value of the business and that the dollars you would receive are the current fair market value of this equipment.

For example, you have spent $25,000 for a computer system a couple of years ago, and the fair market value of your system today is $1,500. To buy the replacements for your computer system loss is now going to cost you $21,000 (this reduced price is due to computers costing less today). The question is to ask which of the three amounts is your insurance company going to pay you? And when it comes time to have the data from your old system recovered and installed in the new system, who is going to pay this expense?

While we are discussing data, if you have other records that have been lost, will your insurance company pay the cost of a necessary accountant or CPA to do this work? If you own the building your business occupies, do you have a current valuation of the building so that you will have the necessary dollars to rebuild? And for those who have leased part of their building to another business, or are leasing their building from someone, do you have the coverage in the event a fire starting in your business destroys their business? Also, ask the agent if your policy will cover the losses if a fire that is the fault of another tenant destroys your business and the other tenant does not have enough coverage.

When my grandfather's business burned, it was the offsite building that allowed him to continue to do a small part of his business. Of course his sales volume was temporarily en greatly decreased. With all the employees my grandfather had, they could not all fit in the offsite building, much less work there. Does your coverage allow you to keep these employees on your payroll, or will you lose them and have to rebuild your staff again?

The last point we would suggest is that you ask your agent if you need to have an "umbrella" policy. This can be somewhat of a catch all coverage to protect you and your business. With today's "lawsuit happy" mind set, you can see why you need to examine every possible situation. From our own experience, there was a lady who walked into the community resource center in the same shopping center as our store to express her concern about the possibility of someone falling in front of our store because of the wet sidewalk due to the center's irrigation system.

After 20 minutes of discussion with the officer in the resource center, she decided she was hurt and they called an ambulance to take her to the hospital. Some two years later, we are sitting in a lawyer's office taking depositions, even though we never heard if she had actually fallen. The specialist with the insurance company remarked this was the typical "slip and fraud" case. It seems it took the woman two years to find a lawyer to take the case on a contingency basis. Two previous lawyers had given up, but finally one of the "television advertising" lawyers took her case. As much as we were able to cover our position with the statement of the officer from the resource center, between our insurance company and that of the shopping center, she walked away with a check for $6,000.

Can this happen to you? Any of these possible problems can happen to anyone. The key is that you do not want to have to say, "I thought I had coverage for everything. What happened?"

You have worked hard for your business. Don't allow something or someone to take it, or any part of it, away from you.

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This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 1577, St. Petersburg, Fl. 33731. Phone 727-464-2182. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.

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Profits Plus Solutions, Inc.
PO Box 1577
St. Petersburg, Fl 33731
(727) 464-2182
Fax: (727) 898-3179