Insurance Secrets: How to Protect Your Business Before the Loss

Running a business is no small feat, and protecting it from unforeseen events is critical. Insurance plays a vital role in safeguarding your investment, but many business owners discover gaps in their coverage only after a loss. This guide provides a comprehensive, step-by-step checklist to ensure your business is adequately protected before disaster strikes.

Step 1: Review and Match Policy Details

1. Ensure Alignment of Titles: Confirm that your property and business titles match the “Named Insured” on your insurance policy. Discrepancies can cause significant issues during claims.
2. Verify Insurance Application Accuracy: Request a copy of your original insurance application to review its accuracy. Correct any errors immediately.
3. Understand Coverage Determination: Identify whether your agent set your coverage limits or if you determined them. If your agent recommended higher coverages but you declined due to premium costs, document this.

Step 2: Analyze Policy Coverage

1. Certified Copy of Policy: Request a certified copy of your commercial insurance policy, including all limits and endorsements.
2. Square Footage Accuracy: Double-check the square footage of your building as calculated for coverage. Have a contractor verify measurements.
3. Co-Insurance Clause: Review your policy to ensure the co-insurance box—90%, 100%, or Agreed Value—is correctly marked.
4. Replacement Cost vs. Actual Cash Value: Verify whether your building is insured for replacement cost or actual cash value. Ask if the replacement cost includes equivalent materials or functional replacements.

Step 3: Examine Policy Endorsements and Extensions

1. Replacement Cost Endorsements: Check for endorsements that extend your building coverage limits (e.g., 20%, 25%).
2. Debris Removal Coverage: Confirm if there’s additional debris removal coverage beyond your building limits.
3. Ordinance and Law Endorsement: Ensure coverage for code upgrades mandated by local authorities after a loss.
4. Pollutant Coverage: Verify coverage for pollutant testing, cleanup, and removal, including exclusions and applicable inclusions for lead and asbestos remediation.

Step 4: Evaluate Personal Property and Additional Coverages

1. Business Personal Property: Determine how limits were set for business personal property and whether replacement cost or actual cash value applies. Verify if a co-insurance clause exists.
2. Valuable Papers: Ensure sufficient coverage for recreating essential business documents.
3. Personal Effects Coverage: Make a detailed inventory of items owned by others within your business and confirm coverage adequacy.
4. Signs and Outdoor Property: Check coverage limits for signs and outdoor property like landscaping, driveways, and poles.

Step 5: Safeguard Equipment and Specialty Items

1. Electronic Data Processing Equipment: Clarify what is covered under this category and confirm replacement cost coverage for computers and software.
2. Collectibles and Memorabilia: Properly document items with appraisals and ensure coverage limits meet their value.
3. Inventory Coverage: Confirm separate coverage for inventory and appraisals.

Step 6: Plan for Business Continuity

1. Business Interruption and Extra Expense: Ensure coverage is adequate and verify if monthly limitations (e.g., ¼ or 1/6th of the total limit) apply. Adjust limits to match your revenue stream.
2. Tenant Improvements: If you lease your space, confirm coverage for tenant improvements and betterments.

Step 7: Address Miscellaneous Coverages

1. Locks and Keys: Confirm your policy includes coverage for locks and keys.
2. Exterior Glass Breakage: Verify coverage for exterior glass damage.
3. Vandalism and Theft: Ensure your policy adequately covers vandalism and theft incidents.

Step 8: Consult with Professionals

1. Legal Review: Have your attorney review your insurance policy and related documents for compliance and accuracy.
2. Agent Clarifications: Regularly consult with your agent to understand your policy’s details, including any recent changes in coverage or endorsements.

Step 9: Maintain Documentation

1. Keep all relevant documents organized, including your insurance policy, application, endorsements, and correspondence with your agent. Regularly update inventories and appraisals to reflect current values.

By following this checklist, you can proactively protect your business from potential insurance pitfalls. Preparing before a loss occurs ensures smoother claims processing and better financial recovery. Don’t wait for a disaster—take action today to secure your business’s future!