Insurance for Your Business

The Making Business Fun Podcast, Episode #108

Well, admittedly, this is not the most exciting of all the topics we have for our podcast. However it does come up from time to time, and at times it is important. Today we are going to be discussing insurance. The type of insurance you could have, the types of insurance you should have, and the choices you can make with regard to landing those policies.

I'm going to assume that most of the listeners out there know kind of how insurance works, in general. For example, a lot of you probably have health insurance and car insurance. And the kind of insurance is that you'll have for your business works more or less in the same way. You pay a premium, you get a certain amount of coverage, and then when things go sideways, the insurance policy is there to help you out. Today I'm gonna be talking about health insurance, business owners catchall policies, property and casualty insurance, liability insurance, Worker's Compensation insurance, errors and omissions insurance, business interruption insurance and also auto and life insurance. Fasten your chin straps, it's going to be an exciting day talking about insurance.

Health insurance

Let's start with a bit of a heavy hitter, health insurance. Health insurance is so important because, if you have employees, it's something that they are going to inquire about as part of their compensation package. If you don't have employees, then it's something you need to think about for yourself as the owner of the business. The best advice I can give you from the very start is to shop around. You may have an existing relationship with an insurance company that insures your house, and you can start with them by calling and asking if they offer business health insurance policies. Also, there's plenty of advertisements on TV for national brand insurance companies. Almost all of them will offer some sort of healthcare insurance for business owners and their employees. Again, going to their website, checking them out, getting a quote is a great place to start. One key distinction, however, is that if you are working with an insurance agent, that means they are tied to working with one insurance company for example an agent for State Farm insurance, can only sell you State Farm insurance. However, an insurance broker, works with many many insurance companies, and can really get into the details of what your business needs it looks like and can shop around and get you a policy the best fit your business. How to pit? Well if you have a great relationship with an insurance agent already, you can start with him or her. If you don't, then it's probably not a bad idea to find a local insurance broker that you can start working with and start shopping around. By shopping around, of course, you're going to get a bunch of quotes, and you're gonna be looking at a lot of different prices. The problem with that, however, is that each of these policies will be really complex and detail oriented, and I can get confusing real fast.

Details aside, it's important that you don't get a policy that is too cheap and doesn't cover the important stuff. For example, you need to make sure that the plan covers at least the basics, things such as primary care physician, hospital visits and emergency room and urgent care clinics. Also it should include coverage for catastrophic injury, extended illness, and you really wanna make sure that it covers prescriptions. Actually, you can purchase additional policies or purchase with your primary policy extended benefits such as vision and dental. Of course, the more you buy the more you're going to pay.

Whether you're working with an agent or broker, be sure to pay close attention to three things: one the monthly premium, two, the yearly deductible, and three the price of the co-pays. Make sure that this is explained to you in detail, and that you understand the trade-off between low premiums and high deductibles, and vice versa low deductibles and high premiums if you find it confusing, ask them to explain it, again and again, until you understand what's going on. As daunting and frustrating as this can be, it's important that you know what you're getting into. Again, because this is really about benefits for your employees, you want to make sure you get it right, because great health insurance is often a great incentive to get in great employees, and retaining great employees.

Something else I consider, is that you is the employer do not have to pay the entire cost of the insurance policy. With the main health insurance policy, it is not uncommon for the employee to make some sort of contribution against a monthly premium. For example, if your policy is going to cost $500 per employee per month, you could deduct a portion of that from each employee's paycheck to help carry the cost. Additionally, you may want to have some additional insurance options available, such as vision and dental, that are available only if the employee pays the premium completely. That is also not uncommon. And, insurance for things like dental, and especially vision, are surprisingly inexpensive.

Also, be sure to check with your agent and your broker, about the different kinds of health insurance. Here we are talking about traditional health insurance, HMOs, PPO's, and a point of service or POS plan. Also, while you're talking shop with the broker or the agent, ask them about HSA's, which are special savings accounts that are set aside for your employees to use for their healthcare expenses.

At the end of the day, you want to pick a policy that's going to work for the vast majority of the people in your organization. Nothing is going to fit every single person in the company absolutely perfectly, your goal is simply to provide a good policy that works for the majority of the people, an expense that doesn't strangle the companies cash.

Business owners policy

Quick story, I am in the manufacturing and wholesaling business that was operating with very very tight cash flow. And it was nerve-racking. And I can remember, one day I was driving to the factory, and I drove past this shopping plaza. And as I looked over, I saw that at one end of the shopping plaza was a pizza restaurant, that apparently had caught fire the night before. It burnt down the pizza restaurant, and it also burnt down the four businesses to the right of it. And, the additional 12 businesses to the right of that were all closed down, because the fire department and the landlords had taped off the entire shopping plaza. By the time I drove past it again that afternoon on my way home from work, they had erected a chain-link fence around the entire complex. The restaurant that caught fire, never opened again. The businesses to the right of it it also burnt down, disappeared. And the 12 businesses that were unscathed by the fire, remained unopened for almost 9 months, as the fire investigation, cleanup, rebuilding, and reopening of the shopping center dragged on. And it wasn't more than a few days after I first drove by the fire, that I bought my very first business owners insurance policy.

So, a business owners policy, or a BOP, is a type of catchall insurance coverage. It is specifically designed for business owners, and it covers a whole lot of stuff that a business owner may potentially run into, that might have a big detrimental effect on their business. The very first thing that most business owners policies cover are things like fire and other mishaps. You will shop around with a few different insurance companies, and look at a few different business owners policies. And as you look around, pay close attention to what exactly they are covering, and how much coverage they are offering. Like I said, most will cover fire. Some will cover break-ins and theft. Others will include coverage for things like if a tree falls and smashes through your store. Or, water damage from a broken pipe. Or, importantly, especially for those 12 businesses that were shut down for nine months when the pizza shop burned down, business interruption coverage. Business interruption coverage pays out in the event of something like this: say a water main breaks on your street, and the city has a close down the street for a month. That means your business can't open for a month, and you would file a business interruption claim with your company, and get paid out on that interruption of business.

If you are operating on very very tight cash flow, and you imagine that having your cash registers turned off for a month would be detrimental to your business, then having something like business interruption coverage is incredibly reassuring. I will say, the only time I ever filed a business interruption coverage claim was when the COVID-19 pandemic came along, and the whole world went into lockdown. That certainly sounded like business interruption to me, but somehow the squirrely insurance companies had written the policy in a that would only pay out a business interruption if something physical happened to my location. Like a tree falling on it, or the building burning down. Good to know.

One particular thing to talk to your agent or broker about, is coverage for human resources and employee issues. Here, I am talking about things like sexual harassment and discrimination claims. Without in any way getting into the right or wrongs of this, it is fair to say that sexual harassment and discrimination claims against businesses are dramatically on the rise. The emotions and situations and complications and expenses surrounding such incidents can escalate so quickly, so dramatically, and so catastrophically, that really makes incredibly good sense to discuss with your agent or broker how you are insured against this, what kind of coverages will be if included, and, very very importantly, if someone makes such a claim against your business, will the policy pay the legal fees associated with your defense of the claim, and settlement of the claim. Please do not neglect to discuss this with your agent or broker.

And additionally, if you are in any way uncertain as to what the standards are in today's business places with regard to sexual harassment and discrimination, do your research, and understand the laws around these very important and tricky issues. Not only do you need to understand the nuances of these laws, but you are also responsible for making sure that the members of your management team, and your employees, also understand what the laws are and what everyone's responsibilities are if a claim is to arise, and how everyone is expected to behave on the job. Like I said, if you were confused on any of this, find a way to get unconfused before this becomes a major issue for you or your company, as I have seen it become major issues for many of the people, businesses, and corporations I have worked with very recently.

Anyway — Business owners policies are so common, and so routine, and so relatively inexpensive, particularly for the amount of coverage they provide, that it really is a good idea to talk to someone about getting a business owner's policy. A good BOP can provide a tremendous amount of peace of mind, and also, if things go wrong, you won't have to explain to your mom that no, you didn't have insurance on your business. Definitely considering talking to a business owners policy insurance broker, explain to them what your business does, what you perceive the risks to be, and they will guide you into something that fits the bill.

Property, casualty, and liability insurance

For those of you who own a house and have homeowners insurance, or for those of you who rent and have renters insurance, you can get the same sort of insurance for your business as well. I'm talking about the kind of insurance that covers your building, and equipment, and other things like your inventory and machinery, your computers in cash registers, your fixtures and furniture, and all the stuff like that. It's sort of protects the building, and its contents. And, it ensures those things against events such as theft and fire or other physical damage to your business. This is often something that you can pick up as part of your business owners policy, or you can have a separate property and casualty insurance policy all on its own. I should say, you can get this kind of policy on your business regardless of whether you rent or own your location.

Liability insurance is an important one. This also could be wrapped into a business owners policy, or you can purchase liability completely on its own. You may see this referred to as comprehensive general liability or CGL insurance.

This kind of policy covers two major malfunctions. The first one is liability against claims against you or your business if you, or one of your employees, is negligent in one way or another, and a customer or someone else gets hurt. I guess the most common example of this is, someone slips on your businesses icy sidewalk and they sue you. In this event, the liability insurance company would pay the claim.

Second part of liability insurance, is that if in fact you are sued, the policy not only pays the claim, but it also pays your lawyer bills. That's fantastically, and terrifically nice, because lawyers can get very very expensive.

Workers compensation insurance

I find this to be the most boring type of insurance there is. Maybe I find it boring because it's legally required by law in every state, I believe except for Texas. Also, it's not particularly dynamic or imaginative.

Worker's Compensation does two basic things. First, if your employee gets injured, this insurance pays for that employees medical bills and lost wages. Second, if an employee gets killed or injured while he's working for you, this protects the owner of the business against claims by either the injured employee or the injured employees family. As an additional add-on, there may be a place here where you can buy additional coverage to protect your business from the sexual-harassment and discrimination claims that I mentioned earlier in the podcast.

The cost of workers comp insurance depends on a few things. It depends on how long you've been in business, it depends on how many claims you have made, it depends on what state you're in, and it depends on the kind of business you have. More specifically, it kind of depends on the kind of employees you have. For example, if you have 25 employees total, and 25 of them are desk workers, that would be less expensive than if you have 25 employees and they are all tree top chainsaw operators. I'm sure you can see the distinction. In one case, the desk jockeys might sprain a wrist every few years, but the dudes on the tree tops with the chainsaws are liable to get into trouble probably every five or 10 minutes.

As time goes by, you can reduce these rates by reducing the amount of workplace accidents and claims. And in some instances, if you have no claims, you can even get a refund from the company, so I'm told. I've never actually had this happen to me, however.

Like I said, I believe Worker's Compensation is required in every state in the United States except for Texas, but check with your local law makers. Sometimes certain types of businesses, of certain sizes, are not required to have Worker's Compensation. If your business really is just three people sitting around the computers, you may feel comfortable not having workers compensation. Either way, check into it, see what’s legal, see what it costs, and see what feels right to you.

Errors and omissions

Errors and omissions insurance, commonly called E&O insurance, is a bit of a professional services liability insurance. It's pretty common for people who are in the business of giving advice or doing services on behalf of clients, and it covers your business if you make an error, or an omission. And, if that error or omission causes a customer or client material damages, then your errors and omissions policy can pay the damages. The classic example of this is a Doctor who carries errors and omissions, because if the doc screws up, the claim can get expensive. Errors and omissions is a form of doctors malpractice insurance. Pretty much boils down to, if you're in the business of advising clients, or making decisions for your clients, then you really should talk to someone about getting errors and omissions coverage. A good person to ask, would be your lawyer.

Key person coverage

Key person coverage is a little bit grizzly. This type of coverage will pay out to the business if an important — or key — employees dies, and that has a detrimental effect on the business. A quick example. God bless Oprah Winfrey. She's amazing, and she's built a huge empire in her name. You can guarantee that the companies that own and produce her businesses have key person coverage on Oprah. Same for Martha Stewart. Same for, I'm sure, Moe, Larry, and Curley. This is common in any type of business where someone is deemed fantastically important to the success of the business. Steve Jobs, Bill Gates, Elon Musk, Ronald McDonald, and so on, would all be people who are or were listed on key person insurance policies.

Do you need it? It's possible. If your star employee were to croak, and it would really screw things up, then you might want to have this kind of coverage. If you think this might be right for you, check into it.

Life insurance

Related a bit to the key person insurance, that we just talked about, is life insurance. Life insurance goes to the question of why are you even in business? Chances are, you are a business to make a profit, and a profit in many cases is to benefit your family. If something happens to you, what happens to you family? It's a good thing to ask, and a good answer is life insurance. It's not going to hurt for you to talk to a few life insurance agents, a pick up policy that's right for you.

Very quickly, there are generally two types of life insurance: there are whole life policies and term policies. Typically, term policies are less expensive and whole life policies are more expensive. However, with a whole life policy, you pay off the policy and build equity in the policy over time, and it may be a more prudent investment for you to consider, especially if the company has very healthy cash flow. But, on the other hand, term insurance can be very inexpensive, and it's a hell of a lot better than nothing. Check into it, and make the prudent decision.

Commercial auto

Nothing too fancy pants here, pretty typical stuff. A commercial auto policy is more or less exactly the same as a traditional car insurance policy, it's just sort of a little bit more tailored towards businesses. If your company has cars, vans or scooters, you absolutely, positively must have commercial auto insurance.

I believe every state in the US has insurance minimums. That is, the state determines the minimum amount covered in auto insurance policies. In a lot of states, this minimum is very low, and has very low premiums. However, injury claims resulting from auto accidents are tremendously and dramatically on the rise, and can get incredibly expensive. And those expenses can quickly, and I mean quickly, overwhelm a low cost and low benefit low coverage auto insurance policy. If you have some cheapo policy that only covers up to $25,000, and one of your employees drives a delivery truck into a sidewalk café, your business is going into bankruptcy, game over.

Talk to your agent, and inquire about coverage in excess of $1 million in liability. If your team is driving a lot, or driving heavy or dangerous vehicles, consider carrying a lot more insurance.

Details: Exclusions and claims

Something to pay attention to: exclusions. Whenever you're looking at policies, no matter what kind of policy it is, be sure to pay particular attention to the exclusions. Exclusions are things that the policy specifically does not cover. Some policies have a few, some have a lot. But there's nothing more crappy than having something happen at your work, of which you think you're covered, that when you file a claim, you discover that you are not covered. That sucks. So, find exclusions in your policies, and make sure you understand what they are. If you can't find them, or you are confused by what you find, talk to your broker or agent, and make sure you understand exactly what the exclusions are and how they will affect your business.

As far as making a claim, when things go wrong, you wanna make sure you get on the ball as soon as possible. Insurance companies can be described as sticklers for detail, knowing that if the details are not paid attention to, it could affect the pay out of your claim. Like I said, they could be considered sticklers for details. Another way to look at it, is that they are looking for any excuse to not pay out on your claim. Either way, when things go wrong, you do want to make sure you're doing things the right way.

A big part of this is making sure that before a catastrophe happens, you are set up to deal with that catastrophe. That means making sure that all of your records, policies, logbooks, receipts, computer back ups, and important files are all kept in a safe secure spot, backed up, preferably offsite. You will make sure all the stuff is available after the catastrophe. And if the catastrophe is your primary building burning to the ground, you don't want all of your records and documentation to be burnt to the ground with it. So, it's good practice to make sure things are backed up offsite, and it's also good practice to photo document everything periodically. You can do this once a quarter, we can do it once a year, whatever feels right. At least once a year, I used to make a point to walk around my businesses with a camera and photograph everything so that I had photographic proof of the contents of the business, the set up of the business, photos of my fixtures, furniture, equipment, and inventory. You can do this by photographs, or a video. Also, I would always make a special walk around set of documentation photographs before any sort of natural disaster. Hurricane coming through? That's a great time to make sure you have up-to-date photos of everything in and around your business.

When something bad happens to your business these are the steps to follow. First, report what happened to your insurance company immediately. Your policy may require that you report to them within a certain set amount of time, but either way, telling them as soon as possible is the best policy. Number two, no matter what the problem is, secure the situation. Once you discover a problem, it is your responsibility to protect your business and situation from further damages. This is kind of like with a broken water pipe, or catching a fire in your business, once you catch it it's your responsibility to stop it and prevent as much damage as possible.

When you're talking and working with the insurance company adjuster, try to be cooperative and communicative. Try to make their job easy for them. This adjuster is going to have a large say in the size of the payment the insurance company is going to make to you. Being nice to him at her, and helping him or her complete their job, could turn into more dollars in that insurance company payout check. As usual, a little goodwill can often go a long way.

Final thoughts

Some final thoughts on the issues of insurances for your business. I know when you guys are starting your businesses, you are going to be overwhelmed with a lot of the start up costs. That's natural, and an unfortunate part of being a business owner, and starting a business. And, when the expenses start piling up, it is natural to try and find ways to skimp and save. Particularly for things that don't have an immediate benefit. Like insurance. And you, as a business owner, are the one who gets to decide what kind, and what sort, and what quality, of insurances you carry for your business. No two businesses should or would require the exact type of insurance. All businesses are different, and all businesses have different insurance requirements. So, it is up to you to make a smart, educated, and informed decision. Any many cases, it's a balancing act. On one hand, you don't want to have so much coverage that the company is financially strapped, at the same time you want to make sure you have enough coverage that if something goes wrong, that doesn't bankrupt the business.

Most insurance premiums for a business are tax deductible as business expenses, so keep that in mind. Check with your accountant or lawyers, they can advise you as to exactly if a particular kind of insurance is tax-deductible or not.

In the end, you are the business owner, and this is your decision. So, govern yourself accordingly, and do what you think is right.

A little bit of a follow up to that story I told in the beginning of the podcast, about the pizza shop that burned down half the shopping plaza. Right after that, I bought a business owners policy with a lot of fire insurance coverage. Then, about a month after that, after a month of feeling good because I'd be totally covered if my building burned down, I can remember thinking or realizing that the building that I had just insured against fire was a cinder block building, with concrete floors, concrete protected steel beam rooftop construction, and the contents of the building were basically concrete walls, steel pallet racks, and steel machinery. Looking around, after buying all that fire insurance coverage, I can remember thinking to myself — how could this place even possibly catch fire?