Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 9 minutes
Key Takeaways
- Understand that insurance is a contract, not just a purchase; review your coverage carefully.
- Recognize that your insurance needs change as your business evolves and communicate those changes to your insurer.
- Differentiate between what’s covered and included in your policy to avoid claim denials.
- Be proactive in submitting claims correctly and provide the necessary documentation to ensure coverage.
- Negotiate terms before binding the policy; work closely with your agent for optimal protection.
Business owners generally don’t want to become insurance experts. Their focus is on operations, revenue, and growth. They rely on experienced insurance professionals to identify risks, structure appropriate coverage, and ensure their business is properly protected. A knowledgeable agent or broker acts as a risk advisor, helping translate complex policy language into practical protection that aligns with how the business actually operates.
The problem with this is that knowing insider tips and having some additional knowledge about how your policies work can allow you to make better decisions about the insurance protections that your business needs to have in place. Here are the things that you should know about your policies so that you can be an informed business owner and an informed insurance consumer.
1. Your Insurance is a Contract, Not a Commodity
Many people think of their insurance as an item that they are purchasing each year, rather like a product on the shelf at the grocery store. You need to divorce yourself from this attitude, however. The insurance that protects your business is actually a contract that you sign, stating that you and the insurance company will both act in a specific way and honor this agreement while also protecting your company from harm.
You need to be certain that the legal contract that you sign offers the right coverage for your business. Just like any contract, you should check the fine print and be certain that you are not agreeing to a legally binding partnership that doesn’t serve your needs.
2. Insurance Changes as Your Business Changes
You can’t look at insurance as a set-it-and-forget-it contract. Your business is inevitably going to change, and you need to be sure that your insurance coverage changes with it. When you don’t communicate with your insurance company about changes to the way you are doing business, you can leave yourself open to major problems when it comes to submitting claims. You might even face fines and legal action for operating without insurance coverage.
3. Covered and Included Are Different Things
One of the main things that trips up people who have business insurance is the difference between covered and included. Covered” means a loss is eligible for payment under the policy, subject to deductibles, limits, and exclusions. “Included” typically means the coverage is built into the policy form and does not require a separate endorsement—but deductibles and limits still usually apply unless the policy states otherwise.
Covered services typically generate, at a minimum, a partial payment. Included items should be covered in full. There are always exclusions to any clause in an insurance policy, however. You need to be aware of these exclusions so that you aren’t shocked when your claim is denied.
4. Your Claim May Be Denied Due to the Way They Were Submitted
This is actually a really common problem for those with business insurance, and it makes sense. You probably have more than one insurance policy protecting your business. It can be confusing as you try to figure out which policy you need to use for specific claims.
If you submit a tools and equipment claim under your general liability policy, the claim will likely be denied because liability insurance is designed to cover third-party bodily injury or property damage, not your own property.
However, if you submit the same claim under a tools and equipment policy, often written as inland marine coverage, the loss is more likely to be covered, subject to policy terms, exclusions, deductibles, and the cause of loss.
The other issue is not submitting the right documentation or missing requests for more information from your insurer. You need to make it easy for the claims staff to review your claim and send you a payout. When you don’t provide the right information, your claim might be denied solely because you didn’t provide the documents needed to process the claim.
5. Replacement Cost Doesn’t Mean What You Think it Means
One of the areas where people often get tripped up is the way that replacement cost payouts work on policies like tools and equipment protection. Replacement cost coverage means your insurer reimburses the cost to replace damaged or stolen property with items of like kind and quality at current prices, without deducting for depreciation. However, payouts are still subject to policy limits, deductibles, and settlement provisions. Many policies require you to replace the item first and submit proof of purchase before receiving the full replacement cost amount. This means that the claims adjustor may look at the average cost to replace an item, and then they will provide you with the funding that matches this average amount. In your area, this might mean that you are a few thousand dollars short of the necessary funds to replace the tool or machine.
You need to be prepared for the payout to be less than the cost of a new machine or tool. You might also be required to purchase the new item first and send in a receipt to your insurance company to be reimbursed. Be sure that you know what the process of getting funds for these kinds of claims is, so that you aren’t shocked and frustrated when it comes time to use this part of your policy.
6. Not All Employees Are the Same
Insurance looks at the people who work for you as a risk. Depending on the job that they do, they might be a small risk or a large risk. You need to understand job classification to correctly report your staff to your insurance company and to be prepared for the cost of having policies that protect these staff members.
Workers’ comp policies are not inexpensive, but if you operate in a high-risk industry, your insurance per staff member may be far more than someone’s cost for protecting office workers. Whenever you hire a new staff member, be sure to reach out to your insurance agent or carrier and let them know the type of job they are going to do and how their job impacts your payroll. Keeping in touch with your insurance partner should make it easy to have the right protections in place for your business, and should allow you to avoid fines and fees as well.
7. Subs Can Be a Big Liability for Your Business And For You Personally
Your subcontractors might be a big help to your overall daily operations, but you should be aware of the risks that come along with this kind of employee. Subs don’t work for you as an employee, so they need to have their own insurance to protect them when they are on the job site. You need to obtain COIs for their insurance policies, and you need to provide proper supervision for these workers as well. You can easily be left holding the bag for any errors that they make on the job, which could get very expensive, very fast.
8. Insurance Isn’t a Stand-In for Common Sense
Even if you have the proper insurance protecting your business, you still need to have common sense. You can’t assume that your policy is going to cover you for everything that comes up, and you can’t take unnecessary risks and expect your insurance to cover you for those risks.
Insurance policies protect you the most when you operate with safety in mind. You should also follow the rules of your industry to the letter, and try to avoid making claims unless you really need to. You should keep your insurance company in the loop about changes to your business operation, lock up your tools, and install security systems on your lot.
9. You Can Negotiate Coverage Before It’s Bound
Many people are unaware that, before an insurance policy is signed and bound, some of its terms and conditions may be reviewed, adjusted. You can’t change major aspects of the policies in question, but you can modify your deductibles, opt to bundle, and explore additional coverage that might further protect your business via added clauses in your policies or coverage extensions.
You need to be sure that you end up with the coverage that is right for your business. You also need to read the fine print and learn about the requirements of your industry so that you can be an informed consumer. Taking chances with the safety of your business when something goes wrong doesn’t make any sense. Negotiating and researching before you sign on the dotted line is key.
10. Your Agent’s Job is to Protect You, Not Sell to You
While you may not realize it, insurance agents are licensed sales professionals; their primary responsibility is to act in your best interest by recommending appropriate coverage, explaining policy terms, and helping you manage risk—not simply selling the cheapest policy. You should be able to count on your agent to help you cover and protect your business. You shouldn’t have to feel like every interaction or point of contact with this person is a sales pitch.
Don’t settle for an insurance partner who can’t be bothered to support you once you have purchased a policy from them. You need to work with an insurance team with knowledge about your industry and a desire to help you protect your business when you need support the most.
Real-World Example
Imagine a welder who operates a small mobile repair business and hates to do paperwork. When it’s time to renew his policies, he reaches out to an insurance team that wants to review his coverage. He resists, but they manage to get him into the office for a review.
The team discovers that he is only partially insured for the risks associated with this work and that he is paying too much for his current policy. His resistance to handling paperwork could have cost him thousands in fines and fees. He might have even lost his business due to a single mistake down the road.
It pays to make sure that you do the paperwork, read the fine print, and understand how insurance works.
Things to Remember
You need to communicate with your agent regularly and let them know about any changes to your payroll or business risk. You should read the fine print carefully and make sure that you know what each policy you take out covers.
You should file claims as soon as an incident occurs. The longer you wait, the harder it is to establish documentation and get statements from those involved. You need to be organized and keep track of documents, bills, and other information about your business operations.
Lastly, you should ask questions before you sign on the dotted line for any insurance policy. Settling for whatever is offered and assuming it’s the right coverage can be a disaster.
We take pride in helping business owners to get the coverage that they need and to understand their policies correctly. We never want our insureds to feel like they are being sold to. To us, our insureds are business partners whom we treat like family. You can count on us for fair quotes, long-term support and guidance, and a positive working relationship that will help your business thrive.
