Do You Know and Understand Your Insurance Coverage or
Are Your Insurance Policies Hiding in a Box Somewhere?
By: Scott
J. Richardson
The New Year is a time for resolutions. For many business
owners, reviewing their insurance policies is on their resolution
list and similar to the vast majority of resolutions, while well
intended, they are simply forgotten. Business owners and
individuals know they need insurance. However, they often buy
insurance products without a full understanding of what they are
getting - or much worse, not getting!
Insurance is the shifting of the risk of fortuitous loss.
It is risk management to hedge against uncertain losses that may
occur to you or your business. If you are spending money for
insurance, then getting the best value is clearly in your best
interests.
Frequently, insurance is purchased with the assistance of an
agent or broker. They are professionals who guide you through the
choices of coverage, levels of protection and costs of policies you
purchase for you or your business. And, using a broker or agent
does not cost you a penny!
Many times a business owners claims to have "great insurance"
and doesn't have any idea of what is covered and what is excluded.
Often they have not read the policy and it resides in a dusty
file box somewhere awaiting the next renewal. Considering the cost
of insurance and importance of shifting risk through insurance,
more thought should be given to this important product. Do you, the
policyholder, understand much more about your policy than the
premium cost? And, what do you do with the policies once they are
purchased?
What can you do to mitigate the risk to your business? First,
find a qualified agent or broker who knows your industry
well. Secondly, ask your agent questions mining their
expertise and have them competitively shop your business to get the
most advantageous pricing. The following is not meant to be an
exhaustive list. It is a great starting point to dialogue
with your agent.
- What risks are not covered that I or my
business face? Are you willing to retain these risks? Can they be
insured?
- Are there any limited coverage amounts (sublimits) that provide
a lower dollar amount of protection for certain types of
losses? For example, you may have purchased a million dollar
policy but have only $10,000 coverage for certain losses as defined
and limited in the policy
- In the case of a property policy, does the policy cover actual
cash value or replacement cost value? There is a significant
difference and that is depreciation. An actual cash value policy
provides for coverage in an amount less any depreciation on the
property. In a replacement cost value policy you typically get your
actual cash value (i.e. depreciation deducted) and after repair you
get another amount that covers the difference between
the depreciated value and the replacement cost. The goal
of a replacement cost value policy is to make you whole again after
the property loss.
- Is there any coverage that I should have? As a business with
employees, employment practices liability coverage can provide
protection against suits by employees, or even former employees for
discrimination, wrongful firing, sexual harassment and other such
claims. If you have ever faced an EEOC claim you know the time and
perils of defending your business.
- Is any of the coverage you are contemplating duplicative?
- Have I adequately covered my business risks?
- Business loss insurance should be considered as well
understanding what it does and does not cover - especially as it
relates to your data, a new business location in the case of a
total loss of your existing location and business/customer
records
Once your business policies arrive, carefully review them. Pay
particular attention to endorsements, which are added pages that
change, limit or add to the policy terms. Policies may have dozens
of endorsements. If you only read the policy and ignore the
endorsements you will not get a correct picture of your protection
from risk. Read the declarations page, which outlines the coverage
purchased and the amounts. Are they correct? Go over the
declarations page - and your policy - with your agent or
broker.
Some clients prefer to have a conference with their lawyer to
review their insurance coverage. Timing of this meeting is
important. After the policy is purchased it may be too late
to change your coverage until the policy expires. A
conference prior to renewal or purchase with a thorough assessment
of the risks to you or your business is a better approach.
Remember, insurance is a shifting of risk for a premium. If you do
not fully understand your risks it is hard to purchase adequate
protection.
Reviewing your insurance risks, existing policies and costs
should be one resolution that is easy for you to keep and help your
business start 2012 on a successful note.
About the author: Scott
J. Richardson is a partner at the Phoenix law firm
of Jaburg
Wilk. He assists clients with insurance
coverage matters, bad faith claims and risk
prevention. Scott can be reached at sjr@jaburgwilk.com
or 602.248.1012.
This article is not intended to
provide legal advice. Always consult an attorney for legal
advice for your particular situation.
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. Phoenix . Arizona