Ask the experts: What kind of insurance coverage should I get for my business?Cutting corners on insurance can do long-term damage to your business
Michael Parrish: Partner, Fasken Martineau DuMoulin LLP
This is a question that every business should ask itself annually. There are three main types of commercial insurance coverage:
(1) insurance that protects a business' real property, physical plant and other physical assets and inventory;
(2) insurance that provides the company (and its officers and directors, employees and others for whom the company may be liable) defence and indemnity from third party liability claims; and
(3) insurance that protects the company's business income in the event of a loss that interrupts cash flow.
There are also special policies for special risks, such as construction projects.
The company should start with a risk audit that evaluates its assets and operations, its revenue sources and streams and its potential liability exposure to third parties. This should be done with a lawyer familiar with insurance issues and a commercial insurance broker familiar with your industry. It will give the business and its advisers a better understanding of the type and amount of property and income risk. This information will assist the company in obtaining suitable and adequate insurance to protect its interests.
While every company watches the bottom line, buying business insurance is not the time to bargain-shop. Less expensive insurance (or just less insurance), while seemingly a good source of savings when there are no problems, can leave a company under-insured in the event of a loss or claim. This in turn might seriously affect the company's financial stability and – in the event of a catastrophic problem – lead to insolvency. An experienced insurance broker will help you find the right coverage at the right price.
While no company can eliminate all risks, knowing that you have appropriate and adequate insurance coverage will allow you to focus on your business and, in the event of a loss or claim, ensure that you have the insurance necessary to deal with the problem without negatively affecting your business.
Lindsay Olson: Vice-president, B.C., Saskatchewan and Manitoba, Insurance Bureau of Canada
The best first step in insuring business is to shop for a commercial insurance agent or broker who knows your type of business – or is willing to invest the time and effort to study it with you. This person can help you identify those potential losses that could cripple your business and insure against them. Don't worry about the things that pose little threat. Insure those that do.
Depending on whether your business is run from your home or rented premises, you may or may not need building coverage. However, virtually all businesses need stock or equipment coverage. Any vehicles used for business should also be covered.
You should also have liability insurance, whether home-based or not, because you could be held liable for any bodily injury or property damage resulting from a business interaction. This also covers defence costs.
If you act as a consultant or provide professional services, you should have "errors and omissions" or professional liability insurance.
Ensure you have business interruption insurance. This is usually an add-on that would cover your earnings during the period of a shutdown (e.g., riots, strike, fire). And always make sure your policy is current.
In terms of your business property, in addition to perils such as fire and theft, water damage is one of the major causes of loss. Different insurance options may be available, so check with your insurance professional.
Active prevention works to control insurance costs. Loss-prevention ideas you might consider include:
•installing approved sprinklers, intruder alarms and fire alarms;
•securing all doors, windows and skylights tightly;
•securing storage and other low-traffic areas;
•isolating flammable materials and disposing of waste materials properly; and
•leaving some lights on overnight or at weekends.
Finally, shop around when looking for business insurance. It can pay dividends.
Ed Lee: Wealth protection specialist, Vancity Life Insurance Services Ltd.
Families need a financial plan to secure their future and protect loved ones experiencing emergencies. Likewise, business owners need to protect their businesses this way.
Using property and casualty insurance protects the place of business from liability and disasters like fire, theft or floods, like those in downtown Vancouver a few years back. Business interruption insurance offers important coverage for the business, too. These plans require an experienced insurance professional who understands your business and what risks may be involved.
Unlike employees, business owners typically do not have group coverage for life, disability and medical benefits, yet they still need to seriously manage their and their families' health risks. Business partners should consider life, disability and critical illness insurance plans. They also need key-person (life and disability) insurance for the business, so that if a key employee or partner becomes disabled or dies, the business can continue.
A low-cost term life insurance plan can fund a buy-sell agreement. Tips when using life insurance for this include getting policies in place before key shareholders develop any health problems; making sure policy values keep up with increases in business value (review the policy amount regularly with your adviser or index it at a predetermined rate); specifying who is entitled to any excess insurance proceeds in your buy-sell agreement; and weighing owning the policy corporately or personally.
A common question is whether term or permanent insurance is more appropriate. Some term plans are much more flexible and convertible and renewable policies are guaranteed to renew at a published rate, once they're approved. Because that renewal rate is usually quite high, converting them to a permanent universal or whole-life insurance plan might be better if you need the policy past your renewal date. Permanent plans also have the potential for tax-advantaged income in retirement.