5 Tips For Analyzing Your Business Insurance Quote
Dan Levenson May 03, 2016
Securing adequate and appropriate business insurance coverage is non-negotiable for any business owner whose endgame is to achieve financial success or, at the very least, to avoid legal catastrophe.
For most responsible business owners, this means obtaining at least one quote prior to beginning operations, usually as one of the first steps taken following incorporating and/or registering the business as applicable. For many a small business owner, this will be the first experience that he or she will have with business insurance.
Don’t leave the protection of a business and assets to chance. Improve the odds of securing the correct coverage for any business by heeding these tips for analyzing your business insurance quote.
1. Check the limits of liability.
Liability insurance limits set the maximum amount that an insurance company will pay for any incident. This includes the maximum amounts that the company will pay for bodily injury per person, bodily injury for the entire incident, and property damage. The limits can be either split limits or one single total limit.
Split limits will be shown as three numbers, divided by slashes, which represent the limit for each category. For example, split limits listed as $20,000/$40,000/$13,000 mean that the insurance company would pay a maximum of $15,000 to each person injured per incident, $40,000 total to all people injured per incident and $13,000 total for all property damaged per incident. If split limits are selected, the total coverage for property damage can not exceed the total coverage for bodily injury.
It’s also important to note that if any vehicles on the policy have liability coverage, all vehicles must be covered. Additionally, all vehicles on a policy must have the same liability limits. Finally, each state has its own requirements about the mandatory minimum amount of liability coverage required for a business, so it’s important to double-check what those numbers are and to be sure that the any quotes provided meet those minimums.
2. Check the insurance company’s financial standing and rating.
When selecting an insurance company to provide business insurance, it’s important to be sure that the carrier has the financial resources to honor the terms of the chosen policy by paying claims as necessary. To do this, the company must be both financially sound and creditworthy currently and in the long-term, for at least the life of the policy. Many businesses turn to the evaluations of a third-party to make this determination.
The most widely sought ratings are from the A.M. Best Company. Companies such as A.M. Best thoroughly review a carrier’s financial statements, business plans, credit, actuarial reporting, regulations, reinsurance and underwriting criteria before assigning a rating to a carrier.
Depending on the carrier’s ability to meet its current and long-term financial obligations, the rating can range from A++ (superior) to S (suspended). Additionally, A.M. Best gives each carrier a rating to designate its financial size. These ratings are given in the form of Roman numerals and range from I (less than $1 million) to XV (more than $2 million).
Choosing a carrier with a rating of A or better is a wise move to protect a business from the financial disaster that might follow the inability of a carrier to meet its financial obligations to the business.
Additionally, some state licensing authorities and contracts have requirements about the minimum rating that a business’s insurance carrier must have. Check the rating of any carrier before choosing to do business with that carrier in order to be sure that it can both meet its obligations to the business down the road and meet the requirements of any contracts or authorities as necessary.
3. Check the policy’s deductibles.
When paying any covered loss, the insurance company will first deduct any deductible that has been written into the policy. A deductible, given as either a percentage of a claim or a fixed monetary amount, is the portion of a claim that must be paid by the insured business itself. Including a deductible in a policy protects the carrier from having to pay out endless small claims.
A business can generally choose to have a higher or lower deductible to some degree, although there are some set standards for deductibles. In general, it’s also the case that a policy’s deductible increases as the policy premium decreases. While it may be tempting to select a policy with a low premium and a high deductible in hopes that the likelihood of filing a claim is low, the truth is that it’s not possible to predict when a claim will need to be filed.
With that in mind, it’s important to find a balance between a premium that is compatible with the business’s cash flow and a deductible that will not financially devastate a business in the event that a claim is filed.
Finally, when settling on a deductible, it’s important to understand whether the policy provides a “cash value” basis for replacing a loss or whether it covers replacement cost. A “cash value” basis for replacement means that the carrier will pay the insured business for the value of the damage minus any depreciation. This amount may not be enough to fully replace or repair losses a business suffers. A complete replacement basis means that the carrier will pay out the full amount needed to repair or replace damages. The replacement cost will generally result in a higher premium than a policy that pays out losses on a “cash value” basis.
4. Understand payments agreements.
A policy’s payments agreement outlines how, when, what amount, and how often a premium must be paid. It’s important to make sure that the payments agreement of a quote lines up with what the business’s cash flow is able to support.
Additionally, it’s important to note what the terms of policy cancellation and suspension are regarding late payments. Failing to make a payment before a policy is cancelled can result in changes to the policy and future policies and may even result in unpaid claims if there are incidents that occur during a time that a policy is not in effect. This can put the entire business at risk.
5. Check the accuracy of the classification of business industry.
A business insurance quote will include a classification of a business according to industry. This classification is made based on what a business’s main activity is. It can affect both the premium amount as well as what activities are covered by the policy. This makes it essential that the classification given in a quote accurately reflects the main business activities that the business seeking insurance participates in.
If there are any questions about whether this classification is accurate, it’s imperative that the business seeks clarification from the carrier who has issued the quote in question prior to contracting for the policy.
Need an insurance quote for your business? Speak with one of our experts and get your company started on the road to success with the proper coverage.