Business Insurance is a Must
By Mark Gannaway, CPCU
From one business owner to another, having the correct insurance in place is not easy and not inexpensive. For Arcana Insurance Services, we dread paying insurance premiums just like you do. But prudent business owners are always concerned about large uninsured losses that could damage their financial well-being or worse, put them out of business.
To give you an idea of what coverages to review with your insurance agent, Arcana purchases a Businessowners Package policy, Businessowners Automobile, Directors and Officers, Crime, Professional Errors and Omissions, Worker’s Compensation, Commercial Umbrella and Health Insurance for our employees. That’s a lot of insurance and a lot of money. But this list also reflects the many financial dangers we all face every day of the year.
Other insurance options you should consider include flood insurance for your office location; and if you are a sole owner or have a business partner or partners, Key Life insurance to fund the Company’s expenses for a period of times such as tax implications.
We won’t name names, but Arcana’s management is always amazed at the lack of insurance discussions at the conferences we attend. Most do not have a breakout session on insurance or a continuing education program to offer their members throughout the year. Symbolically putting your “head in the sand” or making a dangerous assumption Investors hope the minimum priced insurance coverages one purchases will protect you in the event of ALL Losses. This is financial suicide.
Many of you work out of your home and believe your homeowner’s and personal automobile Policy will provide you the necessary protections for your business entity. That is one of the biggest mistakes we see in this industry and in almost all cases is a false sense of security.
Any insurance policy that has the heading “Personal” in its title usually means “Not Business!”
For example, in reviewing my own personal automobile policy, which happens to be from the number one consumer rated company in the United States year after year, uses “regular use” consistently throughout the Policy. What is also interesting, it isn’t defined in the Definitions section of the Policy. For clarification; I went to the Business Automobile Policy (BAP) to see what qualifies for coverage. BAP “provides insurance protection for a company’s use of cars, trucks, vans, and other vehicles in the course of carrying out its business. Coverage may include vehicles owned or leased by the company, hired by the company, or employee-owned vehicles used for business purposes.” You need a BAP policy if you drive to or between several locations, or if a colleague regularly takes your car to visit clients. You will also need it if you drive hundreds of miles a week for business purposes.
Another interesting exclusion in the personal automobile policy states “For bodily injury to an employee of that Named Insured during the course of employment or maintaining or using any vehicle while that Named Insured is employed or otherwise engaged in a business” is excluded.
Now to the business owner who works out of the house and believes his homeowner’s and personal umbrella policy protect his business for property and liability claims related to his business operations. Again, if doesn’t have Commercial or Business in the title of your insurance policy, chances are you’re not covered for your business.
Again, going to the Definition Sections of both my own homeowners and personal umbrella liability policies, Business is defined as: “A trade, profession or occupation engaged in on a full-time, part-time or occasional basis. Any other activity engaged in for money or other compensation.” Exclusions include bodily injury, personal injury or property damage arising out of or in connection with a business and includes locations where the Named Insured “engages in or conducts business from either owned or property rented to the Named Insured.” So; if someone comes to your ‘home office’ to conduct business and falls and is injured, your Policy will not cover the upcoming medical and potential legal suits for damages that may follow.
They go further in both policies by defining and excluding coverage for any employee or employees of the Named Insured. An employee is: “an employee of an Insured, or an employee leased to an Insured by a labor leasing firm under an agreement between an Insured and the labor leasing firm, whose duties are other than those performed by a residence employee.
Most Homeowner’s insurance policies also have a limit of not more than $2,500 coverage for business property within the home. As you can see, Homeowner’s insurance and Personal Umbrella Policies are not your “friends” when it comes to your business.
I hope this little insurance exercise clarified the differences in business verses personal insurance needs and what to discuss with your insurance agent at your next visit. Always remember if the answer cannot be found in your insurance policy, make sure your insurance agent puts it in writing to you.
Arcana offers members of National REIA multiple insurance products specifically designed for Investors and their tenants. Features include no underwriting or inspections, 24/7 desktop & smartphone certificate delivery system, outstanding claims management service, and a very knowledgeable & courteous staff to handle your insurance needs. Learn more by visiting https://nreia.arcanainsurancehub.com.
Mark A. Gannaway, CPCU, is the Chief Executive Officer and Founding Partner of Arcana Insurance Services, an all-lines property and casualty managing agency that’s been working with real estate investors since it began in 2005.