Some Types of Insurance You Need for Your Import / Export Business

You’ll need insurance for many aspects of your import/export business, from employees to cargo. Read on to find out more.

Insuring your employees

Once you hire employees, you’ll need to think about caring for them. Workers’ compensation insurance laws vary among states; check with your insurance agent for details in your area. Workers’ comp covers you for any illness or injury your employees might incur on the job. If your employees work in your home office and get injured there, your homeowners’ insurance may refuse to pay on the grounds that it’s actually a workers’ comp case. Check with your insurance agent regarding what you need, then make an informed decision.

Export credit risk insurance

Thanks to the Export-Import Bank of the United States, you can purchase several types of export credit risk insurance designed specifically for the newbie exporter and small- to mid-sized enterprises. These policies protect you in the event that your foreign buyer decides not to pay you for either commercial or political reasons. The Ex-Im Bank (and the United States) hope policies such as these will encourage both you and your financial institution to take on higher-risk foreign markets.

Your menu options at Ex-Im are the following:

Small-business policy. This multibuyer policy requires that you insure all your export credit sales with Ex-Im; it’s designed to free you from the “first-loss” deductible of most commercial policies. To take advantage, you must have an export credit sales volume of less than $5 million in the past three years before application, your company must qualify as a small business under the Small Business Administration’s definition of the term and you must have been in business at least one year with a positive net worth. How do you find out if you qualify? Call the SBA’s Office of Size Standards at (800) 827-5722, or check its website.

Umbrella policy. This policy boasts the same coverage and eligibility as the small-business policy above, but it allows you as an export management company or export trading company to act as an adminis­trator or intermediary between Ex-Im and your clients.

Short-term single-buyer policy. This one, which covers a single or repetitive sale, is for the exporter who doesn’t want to insure everything with Ex-Im. A special reduced premium is offered to small businesses.

Cargo insurance

When it comes to cargo insurance, to mangle a well-known advertising maxim, “Don’t let your merchandise leave home without it.” The cost of the insurance usually runs about 1 percent of the insured value, although this varies with the type of goods and method of shipping.

Related: 4 Online Marketing Tactics to Advertise Your Import/Export Business

What do you get for your money? Peace of mind, for one thing, as with all insurance. And, in the event of a cargo misadventure, your insurance coverage should include enough to repay you for not only lost or damaged products but for your extra time and trouble and those lost profits. You’ll want to purchase all-risk insurance, which covers your cargo against everything except man’s inhumanity to man — war, strikes, riots and civil commotion — and inherent vice in the cargo. What is vice, you ask? It refers to any sort of plague or pestilence that might attack your cargo, such as boll weevils in those gorgeous cotton blankets or E. coli on your Texas steaks.

You might also want to consider general average insurance. This protects you in the event of someone else’s cargo loss. Say the ship carrying your containers runs afoul of stormy weather. The captain decides to jettison a portion of the cargo to save the rest, and they dump somebody else’s stuff into the briny deep. Fine, you say. Not quite. According to maritime law, even though your merchandise has made it to port safe and sound, you can’t take possession until you’ve paid for your share of the loss.

Let’s look at another scenario. Say the other party in your transaction has purchased insurance — for example, the exporter who’s shipping to you CIF (cost, insurance and freight) but you’ve got a funny feeling that their coverage isn’t too reliable. Not to worry. You can purchase a contingent policy, which is about half the price of regular insurance and will serve as backup insurance in the event of a catastrophe.

As a newbie trader, your best bet will be to purchase insurance through your freight forwarder, who has a blanket policy, or directly from the air carrier. As you grow, you may wish to purchase a blanket policy of your own, which will cover you for everything you ship over the course of a year.

Avoiding insurance claims

Out on the high seas, your cargo may be subjected to rough and stormy weather. On the docks, it can be equally buffeted about by tough longshoremen. What can you do to help ensure your cargo doesn’t become a marine insurance claim?

1. Pack with dock loading and unloading procedures in mind. Your cargo may be slung around (or skewered) by anything from a forklift to a sling or net, and then, if it survives that, left outdoors to rot. Often, cargo is “stored” on port decks or out on airplane cargo tarmacs, without any covering. If you’re unfamiliar with overseas port operations and don’t have the right packaging, you can lose cargo.

2. Pack to expect Mother Nature’s worst. Container loads can shift during heavy seas and storms. Someone else’s cargo can smash into yours — or vice versa. A sea voyage may be good for a human’s health, but it can be murder on merchandise. Think heat and humidity, salt air (which is incredibly corrosive), rain and sea spray. When any or all of this gets into your containers, you can end up with rust, blistering, mold, mildew and moisture damage.

Related: The Major Players You’ll Work With When Running an Import/Export Business

3. Pack to expect human nature’s worst. Some people just can’t resist somebody else’s goods. Theft can be a problem, especially when containers are left on the docks for a long time.

With all these potential disasters in mind, pack smart. Use adequate packaging materials; make sure your merchandise is cushioned against blows. Waterproof everything possible. Have package exteriors shrink-wrapped. Use waterproof lining on interiors. Coat exposed metal parts on machinery, for example, with grease or some other rust arrester. Use heavy strapping and seals. Discourage theft by eliminating trademarks or content descriptions on container exteriors

Liability Insurance

Yes, you do. Any business that deals in high-risk and related activities, such as construction, should have appropriate levels of insurance in place. Otherwise, you run a serious risk of bankruptcy — if there’s a judgment against your company — or worse, exposure of the owners personally.

Related: Top Seven Mistakes Business Owners Make Filing Insurance Claims

As to other legal factors, you’ll want to take steps to reduce your risk exposure. These include: forming a separate business entity, having a written contract for all of your jobs and complying with any health or safety regulations that are relevant to your business. Don’t overlook codes and regulations concerning sanitation and disposing of hazardous materials.

As to the business itself, you’ll want a clear understanding with your business partner about decision-making, capital contributions and why each of you might leave the business — which you’d address in a partnership agreement. A local attorney who understands the construction industry should be able to help you with these items

Learn More About Key Person Insurance

Key person insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps a key employee or two. These are the people who are crucial to a business–the ones whose absence would sink the company. You definitely need to consider key person insurance on those people.

 Here’s how key person insurance works: A company purchases a life insurance policy on its key employee(s), pays the premiums and is the beneficiary of the policy. If that person unexpectedly dies, the company receives the insurance payoff. The reason this coverage is important is because the death of a key person in a small company can cause the immediate death of that company. The purpose of key person insurance is to help the company survive the blow of losing the person who makes the business work.

The company can use the insurance proceeds for expenses until it can find a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and close the business down in an orderly manner. In a tragic situation, key person insurance gives the company some options other than immediate bankruptcy.

If the company is a sole proprietorship and employs just you and no other employees or has no other people who depend on it, then key person insurance isn’t as necessary. You’ll notice we didn’t mention your family–don’t confuse key person insurance with personal life insurance. If you have a spouse and/or children who depend on your income, then you should have personal life insurance for that purpose.

How do you determine who needs this insurance? Look at your business and think about who is irreplaceable in the short term. In many small businesses, it’s the owner who holds the company together–he may keep the books, manage the employees, handle the key customers and so on. If that person is gone, the business pretty much stops.

How much key person insurance do you need? That depends on your business, but in general, you should get as much as you can afford. Shop around and get rates from several different agents; most life insurance agents will sell you a key person policy. Be sure to ask for term insurance–many agents will push whole or variable life, which have much higher premiums and commissions but are unnecessary for a key man policy. Ask for quotes on $100,000, $250,000, $500,000, $750,000 and $1 million, and compare the costs of each. Then think of how much money your business would need to survive until it could replace the key person, come up to speed and get the business back on its feet. Buy a policy that fits into your budget and will address your short-term cash needs in case of tragedy