Becoming a Well-informed Insurance Buyer

By Bill Velin

A well-designed business insurance program is essential when it comes to protecting your business from the many risks you face every day. It can provide you with an invaluable financial shield from losses, but only if you know what type of insurance to buy, how much to buy, and from whom to buy it. There is only one way to make a wise choice when it comes to purchasing insurance – and that is to make sure you know what questions to ask.

Information is the key to finding the best coverage for your business, and much of that information will come from you. You will need to compile at least the following information for your agent in order to begin the process:

  • Current business insurance policies
  • Updated payroll and sales records
  • Current financial statements
  • Claim information from the current year and three prior years
  • Current schedule of vehicles and drivers (name, date of birth and drivers license numbers)
  • Any promotional literature on your company

Once your insurance information above is in order, it’s time to assess how much “risk” you should retain. Insurance is a method of allowing you to “transfer” the risk of financial uncertainty to an insurance company in return for a known premium. So the first thing you want to calculate is how much of the financial uncertainty you are willing to take on and how much risk you want the insurance company to assume.

The risk you retain is the deductible, while the risk the insurance company assumes is the limit of liability over and above the deductible. Generally, the premium you pay will depend on the deductible you are willing to assume if a loss occurs. By choosing a higher deductible, you retain more risk and pay a lower premium. Conversely, the lower the deductible, the higher your premium will be.

When premiums are high or coverage is difficult to obtain, you may want to choose a higher deductible and pay for losses under the deductible out of your pocket. The premium savings you will realize makes the most of your insurance dollar, providing you with maximum protection against loses that can result in bankruptcy, debt financing or the postponement of future business plans.

Once you have provided your agent with the information you have compiled, you can expect to receive a comprehensive quote from an insurance company. You should review the quote in detail with the agent for the following information:

  • Have the payrolls been correctly separated and is the premium based on accurate payroll estimates?
  • Is the auto schedule accurate?
  • Does the quote include all the coverages you and the agent identified on the application?
  • Does the quote include umbrella coverage?
  • If you need Product Liability coverage, is that included in the quote?
  • Is the Property Coverage written on an “all risk” basis or a “Named Peril” basis?
  • Is the Liability Coverage written on an “occurrence” basis or a “claims-made” basis?
  • Are the policy limits high enough? Are they higher than you need?
  • Are you going to receive actual cash value or replacement cost for damaged property?

Keep the following in mind as you look for business insurance designed to meet your needs:

  • Make sure you have insured for the proper values of your property to avoid coinsurance penalties.
  • Property coverages should be extended to cover leased equipment.
  • Coverage should always be provided for lost rental income or loss of business income as a result of damage from an insured peril.
  • Limits should be adequate to protect against all perils.
  • Liability coverage should provide coverage for claims from damages arising from your business premises as well as for damages arising out of your goods or products manufactured, sold, handled, or distributed by you.

Finally, it is very important to choose which agent you want to take your account to the insurance marketplace. The following questions will need to be answered in choosing the right agent for you:

  • How are you treated when you call the agency? Is the agency courteous and responsive? Does it quickly follow up on your requests or do you have to continually prompt them?
  • Does the agency deliver quotes in a timely manner, and what does the agency do to ensure efficient handling of claims?

To summarize, insurance provides essential protection against unexpected financial loss­ protection, which can mean the difference between survival and failure of your business in the face of catastrophe. Since your financial health can depend on your business insurance, it is critical to consider all of the above factors in order  to make an informed insurance buying decision.

(For more information, contact Wells Fargo Insurance by calling 952-242-3111 or by emailing bill.velin@wellsfargo.com.) 

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