All About Insurance Tips

  • Premiums for fire, casualty and burglary insurance on business property are all deductible for tax purposes as trade or business expenses. If a business taxpayer has a self-insurance plan, however, all payments into the self-insurance reserve will not be tax-deductible for purposes; the actual losses incurred by the taxpayer would be the deductions.
  • Premiums for life-insurance are tax-deductible. But premiums paid on a policy covering the life of an officer, employee or other key person are not deductible if the business is a direct or indirect beneficiary under the policy. Premiums paid on a life insurance policy of which the business is a beneficiary are not deductible, since life-insurance proceeds would not have to be included in taxable income when received by the company.

  • Before speaking with an insurance representative, write down a clear statement of your expectations.
  • Do not withhold any important information from your insurance representative about your business and its exposure to loss. Treat the individual as a professional helper.
  • Get at least three competitive bids using brokers, direct agents and independent agents. Note the interest that the representative takes in loss prevention and suggestions for specialty coverage.
  • Avoid duplication and overlap in policies; you will be paying for insurance you do not need.
  • Ask your insurance firm if it’s an “admitted insurance company.” If so, it should have a solvency fund should a catastrophe put the insurance company in danger of going under. An unadmitted carrier has no such solvency fund.
  • The small businessperson should not consider any form of self-insurance. The pool of funds necessary to safely insure losses is extraordinarily large.
  • Get your insurance coverage reassessed on an annual basis. As your firm grows, so do your needs and potential liabilities. Underinsurance ranks as a major problem with expanding firms. Get an independent appraiser to value your property; if it has been more than five years since it was last appraised, chance are you’re in for a surprise.
  • Keep complete records of your insurance policies, premiums paid, itemized losses and loss recoveries. This information will help you get better coverage at lower costs in the future.

Insurance Losses

  • Virtually all policies require notification of an accident within 24, 48 or 72 hours of the incident. The claim itself does not necessarily have to filed at this time. Failure to report the loss may nullify your right to recovery.
  • There must be come proof of loss, though you will have a reasonable period to provide documentation if needed.
  • The insurer usually has three options when it comes to fulfilling the terms of a replacement policy: paying cash, repairing the insured item, or replacing the insured item with one of similar quality. Don’t hesitate to let the insurer know if you prefer one of these reimbursement methods.
  • Disputes regarding the amount of the settlement are put to arbitration. Thus an independent appraiser acts as judge in the conflict Don’t hesitate to use this system of resolving differences. If a compromise cannot be found, a lawsuit can be initiated.

Need Key Man Insurance

Q: What is key man insurance, and does my new business need it?

Key man 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 need key man insurance on those people!

 Here’s how key man insurance works: A company purchases a life insurance policy on the key employee, 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 often causes the immediate death of that company. The purpose of key man 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 man insurance gives the company some options other than immediate bankruptcy.

If the company is just you and doesn’t have any employees or other people who depend on it, then key man insurance isn’t as necessary. You’ll notice that I didn’t mention your family–don’t confuse key man 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 is the founder 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 man 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 man 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.

Let me share an example from my own personal experience. My brother-in-law started a golf vacation business in the winter of 1997. Tommy worked many long hours for almost three years, and it looked like all his hard work was paying off. Then one night he was killed in a car wreck. He was 35 years old. As my wife and I tried to deal with the magnitude of that loss, we also had Tucker Golf’s employees, vendors and customers to think of. No one planned for this to happen. But it did happen, and we had to pick up the pieces. Tommy did not have key man insurance, and the company struggled for almost two years before it recently got back on solid footing. While key man insurance wouldn’t have brought Tommy back, it would have taken a major worry away from his grieving family and employees.

Most people, particularly when they’re young, don’t plan on dying suddenly. If you are working to start or grow a small business, you’ve got plenty on your mind, and chances are you haven’t thought much about key man insurance. But take it from my experience: By the time you need it, it is too late to do anything about it. Call an insurance agent today, figure out how much key man insurance your company needs and buy it!

Some Mistakes Business Owners Make Filing Insurance Claims

Now that Hurricane Irene is done pummeling the Eastern Seaboard, affected business owners will move on to the next phase: trying to figure out if insurance will cover their losses.

Here are the top seven mistakes business owners make in filing insurance claims:

 1. Not contacting your insurer immediately. Many people make the mistake of cleaning up damage before an insurance representative visits the business. This creates confusion about how bad things really were, and you may find that labor you did or paid for is disallowed if it preceded an insurer’s inspection. In a disaster situation, many insurers have a quick-response team that will come out to survey the situation.

2. Not documenting the damage. Often, repairs must begin immediately to prevent additional damage, or equipment must be moved to a new location. If so, be sure to photograph the original scene to document how it was before you started your cleanup effort. Also take photos of any repairs you make.

3. Not keeping damaged goods. If your business cleanup includes removal of items such as water-damaged merchandise, flooring or insulation, keep it all, even if it has to pile up in the parking lot. The damaged materials are all evidence of the impact of the disaster on your business.

4. Not appealing your insurer’s lowball estimate. Your insurer will give you a damage estimate after surveying your business. If you think it’s too low, you can appeal. Hire your own adjuster to do a second estimate. Usually, an impartial, third-party mediator will then be employed to make a final decision on the payment amount.

5. Not reading your policy. It’s a common myth that if you have insurance for a building, you must have coverage for flooding, earthquakes and all other possible calamities. But often, it’s not true. In earthquake-prone states, for instance, this coverage often must be obtained on a separate policy or rider, and flood insurance is only offered through the National Flood Insurance Program. Don’t waste time submitting claims to your private insurance policy if it won’t cover you for the disaster you’ve just suffered.

6. Counting on FEMA for quick help. If your business is in a federally declared disaster area, federal aid will be available. But you can ask survivors of Hurricane Katrina how maddeningly slow this aid moves. It might provide homeowners with temporary shelter and eventual money to rebuild. But for a business owner, your private insurance will be your best chance at receiving money fast enough to reopen before all your customers drift away.

7. Not preparing ahead of time. Obviously, the aftermath of a disaster goes more smoothly if you are ready to swing into action when trouble hits. Start with reviewing your policy to make sure you have adequate coverage. Then be prepared. Do you know where your insurance policy is kept? Is it handy, where you could grab it if you had to leave suddenly? Is an extra copy in a safe deposit box where it would be safe from flooding or fire? Do you have your insurance agent’s number programmed into your phone? It’ll prevent delays if you have your information handy