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Without insurance, small companies
may face big liabilities
By Jounice
L. Nealy • Bankrate.com
 March
1, 1999 -- An attorney's after-hours client trips and falls over
the vacuum cleaner cord where a cleaning company employee is working.
The client's injuries -- real or not -- may become the problem of
the owner of the cleaning company.
Experts say small-business owners need insurance
to protect themselves against such claims. The bigger the company,
the more insurance is needed. But it's never too soon to consider
purchasing coverage.
One is enough
Only have one computer, one employee, one cleaning van or one tiny
little office?
"If you have it to lose, then protect it," says
Dana Coates of Supple-Merrill & Driscoll Insurance Agents and
Brokers in Pasadena, Calif. Coates started The Small Business Insurance
Center more than three years ago as a resource service.
Premiums can be paid several ways, Coates says:
- Use an outside premium financing company.
The business owner usually pays the financing company a 30 percent
deposit and then nine monthly payments, plus interest. The financing
company pays the insurance premium. Coates says the advantage
to this method is the financing company may be more lenient in
collecting than the insurance company. With an insurance company,
he says, "When the hammer is lowered, it's unforgiving."
- Pay a 30 percent deposit directly to the
insurance company and then pay nine monthly installments, plus
a service fee of $5 to $30 a month.
- Pay the insurance company directly and in
full.
PSI Global Inc., a Tampa-based research firm,
conducted an insurance coverage survey last year among small office
and home office businesses, SOHOs in insurance industry parlance,
and traditional small businesses.
PSI found that about 75 percent of all SOHO's
and 90 percent of traditional small businesses have property and
casualty insurance, which protects them against theft and fire.
Theft,
fire and liability
This should be the first type of coverage that small businesses
secure, Coates says, especially if they are retail or manufacturing
businesses. He estimates $1,000 as the average cost for a small
office with no more than five employees and no more than $50,000
in assets, although the price varies depending on the type of business.
For retailers and manufacturers, comprehensive
general liability coverage is also important, Coates says. That's
what kicks in if someone gets injured on the business's property
and sues. Coverage can extend to a maximum of $1 million per claim
and $2 million for the policy period.
"If you have a place of business outside the
home, it's probably a smart thing in case someone's hurt," says
Maria Ericson, senior vice president of PSI Global. If the business
moves to a larger office, or expands in any way, the coverage may
need to change. Ericson says most business owners stay in touch
with their primary insurance agents.
Professional
liability
Professional liability coverage is the third most important type
of insurance for retailers and manufacturers. "This is where a lot
of businesses get knocked out of business," Coates says.
If an employee's business conduct destroys,
for example, a client's computer files, the business owner may be
liable. And if the owner has only general liability or property
and casualty insurance, the damage won't be covered.
"That's where professional liability" insurance
comes in, Coates says. "It covers monetary losses from inappropriate
business conduct."
Professional liability insurance becomes paramount
when the business is a professional office, such as a doctor's office,
law firm or accounting firm. The average cost is $4,000 a year,
Coates says.
Workers'
comp and health insurance
If you hire any employees, "by all means get workers' compensation
(insurance) in place," Coates says. If the premium is more than
$750, business owners pay a deposit to the insurance company and
then a monthly amount that depends on the size of the payroll.
Researchers say that group health insurance
tends to be added when a company has between five and 15 employees.
PSI's study showed that 44 percent of all SOHO's and 85 percent
of traditional small businesses had group health insurance. It tends
to be less common among retailers, but is key to professional businesses
that need critical employees.
"It's very hard to retain professional salaried
people without health benefits," Ericson says.
The
extras
A prudent business owner, Coates says, will also consider optional
types of insurance. Employment practices liability coverage is one
example. It protects business owners in the "types of issues where
employees feel treated unfairly or improperly," he says.
Business owners can buy protection for claims
that include sexual harassment, wrongful termination, discrimination,
negligent hiring and promotion, breach of contract, mental anguish,
libel, slander, invasion of privacy, drug testing and loss of consortium.
Coates says, "It's incredibly valuable in today's
society."
Jounice L. Nealy is a freelance
writer based in Florida
To comment on this story, please e-mail the
Bankrate.com
editors
-- Posted: March 1, 1999
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