Business Insurance

This article will explain business owners what type of insurance policies usually needed for most  businesses. What information is needed to get a quote and what to expect when you contact an insurance agent.  This article only focuses on property and liability insurance coverage.  Visit Greg Steven’s writing about health, life, and benefit insurance plans (Greg Steven’s is our life, health, and benefits guy… its a different insurance specialization).

 Business Insurance Austin TX


Business Insurance Austin TX

Type of Insurance Available and What They Do

There are 3 policies usually required of business owners:

  • General Liability: This coverage includes premises liability (trip and falls), advertising liability, products, and completed operations.  This type of policy may be required by your land lord, vendor, or investors.
  • Commercial Auto Liability (business auto): Your personal auto insurance will not work to satisfy your business insurance requirements.  Personal policies exclude business use. Mary Kay and similar sales consultants are as far as a personal insurance policy may still be okay.  Anything a little more complex, you definitely need a commercial auto policy.  Commercial Auto will sometimes be required by vendors.  It is usually required when your business involves some type of driving (even minimal).  Hired and non-owned auto insurance are optional coverage (sometimes hired and non-owned auto can be added on General Liability). Bottom line is, that if you are driving and operating withing the scope of doing business, your business or whoever hired you (even as an independent subcontractor) may be liable in case of an accident.  This is why anybody who you do work for, may require you have commercial auto (attorneys will find somebody to sue and if you don’t have the money, they will go after who hired you).
  • Workers Compensation Insurance: Covers any injury you are liable for your employees (medical bills, lost wages, rehab, etc).  Bottom line is, if your employees are on the clock, you are automatically liable (absolutely no questions asked).  I often hear businesses say, “we are all family here, our employees would not sue us.” I have no response to this comment.  All I can say is, that is an employee gets hurt, somebody will have to pay.  Workers Compensation is a set of statutory laws. Business get insurance to protect themselves from what they may be financially responsible under these laws.  Insurance for protection subject to these laws (set by the Texas Workforce Commission and Texas Division of Workers Compenssation) is not required in Texas, but highly recommended you have.

Information you will need to get an insurance proposal from an insurance agent

General Liability:

  • General information: Business name, structure, address, years in business, years experience
  • Premises information: square footage of area occupied by business (sometimes not needed)
  • Gross Sales: We need this information to get an idea of the size of your business.  Some businesses are hesitant to give this information.  There is no way around this questions.  We simply need to know.  If an agent gives you a proposal without knowing this, he/she is lying (unless your business falls under a rare business class where sales is not relevant to measuring your business risk).  If you don’t know the sales volume, then give us an estimate.
  • Number of employees: Give us the number including owners and not including owners
  • Wages: Some business classes like construction are heavily rated based on wages.  Sometimes this information is needed, so have it handy.
  • Business Description:  We will need a verbal description of how your business operates.

Commercial Auto:

  • Vehicles: Year, make, model, value of vehicles, and VIN (VIN is optional, but makes quote more accurate).
  • Drivers: Name, date of birth, and driving history.
  • If you have heavy vehicles that weigh over 16,000 lbs, have a towing or moving business, or is for hire (means that you run errands for somebody else), be sure to consult with Texas DMV because you will need a Texas Motor Carrier Number.

Workers Compensation Insurance:

  • We need your FEIN (Federal Employer Identification Number) issued by the IRS. Don’t confuse this with you Texas Tax Payer Number.  Social Security Number won’t work.
  • Wages:  We will need prior year’s wages and estimate future year wages.  If you don’t have it, give us an educated guess.  Workers Compensation Insurance is 100% based on wages and each class of employee has rating factor.  If wages change, price will change.
  • E-Mod: if you have been in business for sometime, you may have an “experience modifier”, per the State of Texas.  If you don’t have one, that is okay.  Eventually you will get one, but it will take some time. Don’t worry if you don’t have one.  But if you do, let us know.

Austin Home Insurance Policy Holders Need to Understand Actual Cost Value VS Replacement Cost

Have you compared your home insurance policy (or any property insurance policy) and see some insurance policy state they cover on replacement cost basis and others state they cover actual cash value basis?  What is the difference?

 

The reality is that in some cases it is night and day difference.  In case of a claim, actual cash value bases will take into account depreciation.  The theory is that in case of a claim, the property must be depreciated because it has been used (no longer brand new), so why should new prices be paid to replace this property.  Insurance is in place to indemnify, NOT for insured’s to be better off (or benefit) after a claim, so ACV is a generally accepted insurance principle.

 

ACV Example: you have a 20 year roof on your 2000 year build home.  In 2015 (you still have the same roof from year 2000), a hail storm hits Austin and it tears down all your shingles, you now need a new roof. Actual cash value basis will depreciate your roof by 75% (15 years roof has been in place / 20 years roof expected life), minus the deductible.  If we assume your deductible is $1,000 and the cost to replace your roof is $10,000, the estimate pay out on this claim is $1,500 ($10,000 – $7,500 (75% of$1,00) – $1,000 (deductible))

 

Many insured complained at the ACV arrangement, so insurance companies came up with replacement cost payout basis. There is no depreciation taken into account in replacement cost.  Let’s use the same examples we used above, but apply replacement cost instead.

 

Replacement Cost Example: on the same 20 year roof which cost $10,000 to replace after 15 years, the payout would be $9,000.  The logic used here is that  in case of a claim, the insured would have to buy new wood, paint, shingles, etc.  Therefore, the insured sustained no true gain the insurance company paid for the claim.  So the concept of “indemnity” still stands.

 

 

The reality is that purchasing a replacement cost policy is much more expensive and more difficult to qualify.  Generally, only property in very good condition will qualify.