Contractors General Liability

What types of insurance to consider for
your business?

Some small-business owners look at insurance as if it were a tax. It may be necessary, but if they
can avoid it or keep it to a minimum, all the better. This view is penny-wise and pound-foolish.
Insurance can give you advantages, as well as providing in the case of catastrophe. There are
several kinds of insurance to consider for your business.

Four kinds of insurance are essential: fire insurance, liability insurance, automobile insurance, and
workmen's compensation insurance. In many businesses, crime insurance may be essential as well.
Fire insurance can be embellished with additional protection against explosion, vandalism,
malicious mischief, smoke, etc. at a minimal additional cost. A comprehensive all-risk contract may
be the best buy for the broadest protection for the money.

Liability insurance is the shield for the business owner against lawsuits by customers who may slip
and fall, or injure themselves with your product. A liability coverage of $1 million is not excessive.
Remember, you may be legally liable even when you exercise reasonable care--in some cases even
if the injury is sustained by a trespasser! Be certain whether or not property of customers that is
in your care is covered.

It is a sad but true fact that in the United States, if you are in business long enough-any kind of
business--sooner or later some body will sue you. We have a greatly disproportionate number of
lawyers, and a mentality that says "sue businesses for all they're worth" regardless of the stupidity
of the "victim." Remember the famous hot coffee spill in the lap?

Errors and Omissions Insurance is your protection against what in the medical field is called
malpractice. While liability protects you if you do everything that "a normal prudent person"
would do, that may not be enough. E&O insurance covers you if you fail to do something an
"expert" would do. For instance, a prudent person wouldn't stack 50-gallon drums full of acid
without some safeguards against falling. An expert should have known that they should be marked
in a particular way before shipping. If an injury occurs in the first case, liability insurance is
enough. In the second, E&O would be necessary, because of your "malpractice" in not properly
marking the containers. In this case, the claim may not even be an injury, but it could be a fine
imposed for the marking failure.

Automobile insurance is of course required by law. Inquire into fleet policies if you have five or
more vehicles used for business.

Workers' Compensation is also a legal requirement for most for states, rates range from 0.1
percent of payroll for "safe" occupations to 25 percent or more far hazardous ones. The workers'
comp coverage premiums can be reduced if your accident rates are below average, and using
safety and loss-prevention measures.Other coverage you should consider include:

* Business Interruption Insurance: Covers fixed expenses that would continue should you
be closed down by fire or other reason. For instance, if the City decides to tear up the road in front
of your store, so that your customers cannot come in! A more common example is if you injure
yourself so that for a short period of time you are unable to operate your business. The bills don't
stop when you do!

* Disability Insurance: Covers you if you cannot work on a permanent or long-term basis.
While you were a wage slave, your workers' compensation insurance covered you as required by
the state. However, self-employed people are generally not covered by workers' comp. You need
to insure yourself instead.

* Crime Insurance: Can be valuable if you are burglarized or robbed. It may cover white-collar
crime as well, depending on how the policy is written. There are federal crime insurance plans to
help in high-crime areas where private crime insurance would be impossible or too expensive to
get.

* Glass Insurance: Covers broken windows, signs, etc. For stores with a lot of glass windows,
this can more than pay for itself the first time you have to replace one of those large show
windows.

* Disability Insurance: You can purchase coverage for injuries your employees sustain off the
job as well as on. This replaces the loss of income while they are recovering.

* Retirement Income: You can get an income tax deduction for funds used for retirement
insurance plans under the Employees Retirement Income Security Act.

* Key-Man Insurance: Your key employees can be insured with life and disability insurance
made payable to your company.

It definitely pays to shop around for your insurance needs. Different companies may have very
different rates for the same cover age--in fact different offices of the same company may offer
differing rates, as most are independently owned and operated.

While shopping, check about including many of the coverage under one "umbrella policy." If the
company is ensuring your home and your car and your business policies, you can often get a
combination deal that will save you money over the premiums of all the policies billed separately.

Understanding General Liability
Insurance

In today's litigious society, even small mishaps can result in large lawsuits. That's why general
liability insurance, alon with property and worker's compensation insurance, are essential for most
companies. Liability insurance protects the assets of a business when it is sued for something it did
(or didn't do) to cause an injury or property damage.

General liability insurance can be purchased separately or as part of a business-owner's policy
(BOP). A BOP bundles property and liability insurance into one policy; however, the liability
coverage limits are generally pretty low. Businesses that need more coverage usually purchase
liability insurance as a separate policy. The amount of coverage a business needs depends on a
couple of factors:

- Perceived risk. Business owners should first consider the amount of risk associated with their
business. For example, a business that manufactures heavy machinery is at a greater risk of being
sued than a company that manufactures linens, and would therefore need more liability insurance.

- The state in which you operate. Businesses that operate in states with a history of awarding
high damage amounts to plaintiffs typically need to carry liability insurance with higher coverage
limits. An insurance broker can offer guidance in this area.

- How General Liability Works

Under a general liability insurance policy, the insurer is obligated to pay the legal costs of a
business in a covered liability claim or lawsuit. Covered liability claims include bodily injury,
property damage, personal injury, and advertising injury (damage from slander or false
advertising). The insurance company also covers compensatory and general damages. Punitive
damages aren't covered under general liability insurance policies because they're considered to be
punishment for intentional acts.

General liability insurance policies always state a maximum amount that the insurer will pay
during the policy period. Usually these policies also list the maximum amount the insurer will pay
per occurrence. For example, if a company has a $1 million occurrence cap in its liability policy and
it's successfully sued for $1.5 million, the insurer would pay $1 million and the business would be
responsible for paying $500,000.

To cover these types of situations, many companies purchase umbrella liability insurance, which
picks up where their general liability coverage ends. Umbrella liability covers payments that
exceed their other policy's limits, and provides additional coverage for liabilities not covered in a
standard liability insurance policy.

Most insurance companies require their policyholders to report as soon as possible any accidents
that could lead to a liability claim. The insurer may then require the business owner to document
the situation, forward all summonses and legal notices, and cooperate fully in any investigations.

Taking precautions before an accident can help keep your liability and insurance rates down. All
businesses can take certain steps to lower the chance of a liability insurance claim:

- Set a high standard for product quality control.
- Make sure all company records are complete and up-to-date.
- Be sure employees are properly trained.
- Get safety tips for your type of business from your insurance company.

Checklist of Issues to Review for General
Liability Insurance
Following is a checklist of key issues for a business to review in analyzing the terms and conditions
of a liability insurance policy:

- Is the dollar amount of the coverage sufficient?
- Is the insurer financially strong?
- Are the premium payments competitive?
- Is the deductible too large?
- Does the policy cover bodily injury to customers and guests on the company's premises?
- Does the policy cover property damage caused by employees and third parties?
- Does the policy cover personal injuries?
- Does the policy cover advertising injury?
- Does the policy cover problems stemming from the company's products, or is a special policy
needed?
- Does the insurer have a solid history of paying claims on time?
- When does a claim have to be made?
- Are the exclusions from coverage too broad?
- Are there special endorsements that may be appropriate?