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Understanding The Types Of Insurance
Understanding The Types Of Insurance
Confused by the various types of insurance and all the variations
in coverage that are possible? This article describes three of the
most common types of insurance and illustrates each with easy to
Property coverage can be divided into two segments in the business
- For fixed property (buildings, fixtures, etc.) and contents
(equipment, inventory, etc.) OR
- Purchased as a combined single limit (see Limits section).
Your property can be covered as:
- all risk OR
- as specified peril (see Limits section).
Almost all policies, exclude such events as wear and tear, as insurance
is intended to cover sudden and accidental occurrences.
Example - If the motor in your 1952 copier suddenly ceases
up and the copier dies, don't expect coverage for the copier.
However, if in its dying throes, the copier shorts out other equipment
on the same line, there could be coverage for the other equipment
(provided there are no exclusions for shorts) which is resultant
damage of the copier wear and tear; and it would be the same if
a fire resulted from the copier.
The property section will cover the building (if other than your
home) in which you do business:
- the fixtures utilized to run that business
for example, commercial stoves, fixed racks, etc.
- drapes, etc.
Contents used in your business are also covered here, if you elect
this coverage. This includes all non-permanently affixed items:
- your computer
- your forms
- your inventory
- your stock, etc.
Example - A water pipe breaks and floods your office.
The carpet, drapes, walls and ceilings would be covered under
building coverage; the desks, computers, files, etc. would be
covered under contents). There are also specific type of content
policies which can be purchased to protect content, material on
computer discs, ideas, etc.
Commercial Auto policies can include:
- towing coverage for the automobiles owned by your business
Collision occurs when your vehicle hits, or collides, with another
object (some policies, do not include hitting animals or falling
objects under collision, but place damage caused by these in the
comprehensive section), or if the vehicle overturns.
Example -Ace employee is rushing to make a delivery and
hits a pothole, damaging the undercarriage of the car. This is
considered collision, just as if he had hit a telephone pole or
another car). Comprehensive picks up all covered losses that are
not considered collision.
Example - Someone sneaks in and keys scratches into the
paint on all of your company vehicles, comprehensive coverage
pays to restore the cars to pre-loss condition. Or, if your vehicle
is caught in a hail storm, or catches fire, the resulting damage
is also covered by comprehensive coverage.
Personal Injury Protection (PIP) and Medical Payments (MedPay)
are also part of property coverage. In an automobile, these coverages
exist to cover medical expenses regardless of who is at fault. State
law vary on which policy is primary for these coverages, if the
driver of the automobile is other than the owner.
Example - Your employee slams his finger in the car door,
PIP coverage pays for the medical treatment cost, with no discussion
on who is at fault.
For business policies, MedPay is usually available to pay for medical
expenses incurred due to injury occurring on the premises of your
business - again regardless of fault.
Example - An elderly customer seems to fall for no particular
reason. You are not necessarily at fault, but for good will purposes,
you take care of the doctor visit. MedPay takes care of the cost.
It is important to note that most of these coverages (first party
coverages which apply to property owned by you, or within your control)
require that you choose a deductible. The deductible is the monetary
portion of the damages which you, as the insured, will bear when
a loss occurs. Deductibles vary according to the choice of the insured.
The good news is the higher the deductible, the lower the premium;
however, know that if you choose a $1,000.00 deductible, the insurance
company will pay for all
A thorough discussion with your agent will determine which particular
coverages best fit your needs. There is no such thing as "full
coverage". Your policy coverage is as complete as the coverage
you choose. Don't assume something is covered - ask to be sure.
Also don't assume that coverages are packaged together in premium
costs. For instance, comprehensive and collision coverages are,
most often, sold together, but carry individual premium costs. Make
certain that your agent spells out all the details.
Liability insurance covers claims as a result of actions for which
your business is legally liable (responsible). It is important to
point out that you can be held liable for the actions of people
acting on your behalf, paid or volunteer, under the doctrine of
respondent superior. Under this doctrine the business (the master)
can be held vicariously liable for its employees (servants or agents)
misdeeds if the employee is operating within the scope of their
duties. If you, or your employee, is at fault for an accident -
or someone claims that you are, you may be expected to reimburse
the cost of damages to another person for their injuries or loss
of property resulting from that accident.
This includes incidents involving your vehicles, as well as those
which may occur on your businesses premises (i.e. slip and fall),
as a result of your products (product liability, as in the Tylenol
scare), or your actions (professional liability, as in liable, malpractice,
Example - Your own a florist, someone forgot to turn off
the hose watering the Azaleas, Customer A comes in and slips and
falls, crashing into the refrigerated glass case. Customer B witnesses
it all. Much blood and an emergency room visit later, Customer
A is now treating with the Skull and Bones Chiropractic Clinic
and is represented by Dewey, Cheatum and How. They have Customer
B's sworn statement about how negligent you were in leaving the
water running. They only want $15,000 (so what if Customer A only
has $1,000 in medical bills, he's had a lot of pain and suffering!)
to settle, or they'll file suit. If you have liability insurance,
the insurance company is already handling the demands of the attorney;
and if suit is filed, the insurance company will handle your legal
defense against the suit.
Your part-time worker is distracted as she delivers those brochures
the insurance company replaced, and rear ends a brand new Lexus.
The other driver isn't hurt, but she is livid that she no longer
has a trunk. She also uses her car in her real estate business,
so needs a comparable rental vehicle. Ouch. And the U Wreck 'Em,
We Rack 'Em body shop is delighted - her son needs braces. If
you have adequate liability insurance, you hand the whole issue
over to your insurance company and relax.
It is important to know that if you use your personal vehicle in
your business, there is a strong possibility that your personal
auto policy may not cover liability claims for damages resulting
from an accident during the conduction of business activities. You
would be wise to look into a Commercial Auto Policy, or a business
endorsement to your Personal Auto Policy.
Liability can also be purchased for non-owned vehicles. In instances
where an employee delivers, or performs some other functions, for
your business in their own cars. Most Personal Auto Policies exclude
liability coverage when the covered auto is used for business. Unless,
you choose to take your chances and go bare in these instances,
call your insurance company or read your policy
There are many instances in which your business could become liable
- legally responsible - for another person's claims of damages (including
products liability, defamation, etc.) resulting from your actions
or the actions of those working on your behalf. If you have the
proper insurance, the insurance company takes the problem off your
hands and pays for the damages up to the limits you have chosen
for each policy coverage (See Limits section). In addition, if you
are served with a lawsuit, the insurance company absorbs all defense
costs (including hiring an attorney on your behalf) and basically
takes over the handling of the all legal issues. Even if the suit
is frivolous. In most states, the cost of defense if over and beyond
the policy limits you have chose for the policy.
Example - In the florist example, the insurance company
determines that Customer A's demand of $15,000 is unreasonable.
Customer A rejects the insurance company's counter offer and sues
you. You turn the suit papers over to the insurance company within
the specified time (varies state to state, but do it as soon as
you are served). The insurance company hires the appropriate attorney
and an answer is filed on your behalf. Defense costs in the amount
of $8,000 are incurred since it goes to trial. The judge enters
a judgment in the favor of the plaintiff (Customer A) for $4,000.
To make matters worse, the witness is now making a claim citing
that he was hit with flying glass when Customer A fell through
the glass case. The policy limits you have chosen is only $10,000.
No problem. The plaintiff is paid $4,000 and your policy still
has $6,000 in coverage to deal with Customer B (the witness).
You can, always, involve your own counsel at any time in the process.
In summary, liability insurance takes care of claims for injury,
or damage to property, to other people not associated with your
business. And it protects you in the event one of those people decides
to sue you - no matter the merit of the lawsuit. You simply hand
the whole ordeal over to the insurance company. However, no policy
covers every event; and every policy varies. You must take
a look at your operation and discuss possible exposures from which
you need protection:
- Do you operate off-site?
- Serve alcoholic beverages at functions?
- Sell products that could cause harm?
BUSINESS INTERRUPTION (Loss of Income) COVERAGE
What happens if your business is shut down?
This could happen due to natural catastrophe (flood) or accident
(fire). No matter, if you are unable to bring in an income, what
happens to your livelihood?
Depending on the type of policy you choose and the type of perils
the policy covers, if you are unable to conduct business, insurance
can pay the income you lose as the result of a loss (catastrophic
or accidental). There is also keyman (see this section) coverage
to cover key people in your business.
(Online Women's Business Center,
This information came from a WBC online article.
*** Any law, statute, regulation or other precedent is subject to change at any time ***
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