5. HOW TO PLAN THE BEST INSURANCE PROGRAM FOR YOUR BUSINESS

GETTING THE MOST ECONOMICAL INSURANCE RATES | STEPS TO TAKE WHEN YOU HAVE A LOSS | HOW TO BUY FIRE INSURANCE | WHAT OTHER FORMS OF BUSINESS INSURANCE DO YOU NEED?

Insurance is a personal and economic necessity in any business. Without its protection you may lose part or all of your invest­ment in your business. Or you may become liable for lawsuits that may be brought against you and your business.

The most economical insurance rates may not be the cheap­est!
How can you be sure you are carrying all necessary coverages, under properly written policies, at the lowest possible cost for sound insurance?

Most important is to move only upon the advice of a com­petent, reliable insurance agent. This is one problem on which you need expert advice.

If you place insurance directly with non-agency mutual or reciprocal companies, have a disinterested adviser check the correctness of contract conditions, rates, premiums, etc.

Ask your broker if all insurance companies used are legally able to do business in the state where the property or risk insured is located, and if they are so sound financially that there can be no doubt about their ability to pay any and all losses in full. You can check with your state insurance commissioner or your lawyer. You can check the insurance company's rating in books such as those published by Best and Company. Find particularly what the reputation of the company is in regard to settling losses fairly and promptly.

Be sure you divulge all material facts when the policy is negotiated. Then the policy cannot ever be voided on the grounds of fraud or misrepresentation.

Be sure you get a binder or acknowledgment as evidence that you are insured between your order and delivery of the policy. And do the same with renewal policies.

Examine your policies when they are issued. Do it from time to time thereafter to see if insurance company and form of policy are approved by your state's insurance department. You ought also to get your broker to take these steps:

Check the terms, conditions and rates of new and renewal policies, especially those which are directly negotiated mutual policies.

Read the policy exclusions for things not covered or not permitted under each kind of policy. Your broker or agent can readily point these out to you.

Review the forbidden actions, etc., from time to time. Changes in your business since the policies were issued may have technically voided some policies.

Get a permit for you if one is necessary. He can obtain the necessary indorsement from  the  insurance company.

Avoid paying larger premiums than necessary because of over­lapping coverage of policies providing similar pro­tection.

Take advantage of changes in rules, rates and classifications to reduce your premium cost or obtain broader coverage at the same cost.

Keep adequate records of all data necessary to comply with the requirements of your policies and a record of the policies themselves. Do that this way:

Include a tickler or some follow-up system that will notify you well in advance of each policy expiration. This should include a second reminder on the expiration date in case the policy or a binder acknowledgment has not yet been received.

Include a record of each policy, showing the name of the com­pany, number, coverage, rate, premium, expiration, and changes, if any, during the policy term.

Have books of account showing the original cost of buildings, machinery, equipment, furniture, and fixtures, and the date and cost of additions or disposals.

Have a record to help in proving a merchandise loss, showing insurable value of inventories, monthly if possible, so that the amount of insurance may be adjusted if necessary.

Remember that many kinds of insurance specifically require that adequate records and books of account be maintained to prove and collect for a loss under the policy.

STEPS TO TAKE WHEN YOU HAVE A LOSS

Whenever you have a loss that you believe to be covered by your insurance, be sure to notify your broker or the insurance company immediately. In most cases your broker will promptly report for you.

If the loss is under a fire or similar policy, do what you can to prevent further loss or damage. If possible, separate the damaged from the undamaged property. Make temporary repairs or replacement, if permitted or called for by the policy, to prevent further loss.

If the loss is a personal-injury or property-damage claim (except under the workmen's compensation law), provide first aid if necessary and permitted by the policy. Forward all such information, including the summons, if any, as promptly as you possibly can to the insurance com­pany.

If the loss is by burglary, holdup, or theft, also notify the police authorities.

If the loss occurs through an employee's dishonesty and a bond is carried, notify the surety company as soon as the loss is discovered.

File your proof of loss within the time specified in your policy. Get professional help in filing adequate claims. Keep a tickler memo of the date your claim is due, so that an extension may be obtained if it is not possible or advisable to file the proof by that date.

What are the usual policies a small businessman needs? Here is description taken, in part, from an excellent booklet issued by the New York State Department of Commerce.

HOW TO BUY FIRE INSURANCE

All-important is fire, lightning, and windstorm insurance to protect against financial loss because of damage or destruction of merchandise on hand, or buildings, as a result of fire, lightning or windstorm. Damage caused by smoke or water accompanying a fire on your own or adjoining property is also covered by this insurance.

The charge per $100 of valuation depends on the construc­tion of the building, the kind of business being operated, the nature of adjacent buildings and their occupancy, local fire pro­tection and other elements of risk.

You want to be sure that insurance carried on building, ma­chinery, equipment, fixtures and stock is adequate. You will have to watch especially rising replacement values if you hope to collect in full in case of total loss. Remember that, if a co­insurance clause is attached to your policies, you can collect partial losses in full only if the agreed-upon ratio of amount of insurance to value is correct. Here is how to keep costs down:

Adjust the amount of insurance regularly in order to be fully insured when inventory values are up and to avoid paying unnecessary premiums when they are down. You may be able to obtain a "reporting" form of policy under which the amount is adjusted automatically at prorata cost.

You will gain nothing by overinsurance. The amount of pro­tection should be based on the actual replacement value of the property at the time of the fire.

Review your coverage from time to time to ascertain whether you are paying excessive premiums on property that has decreased in value.

Check your stock against insurance coverage to see whether policies cannot be adjusted downward, unless current higher   prices   make   up   the   difference.   Spread   the coverage properly among actual values of stock, build­ing, and fixtures.

Give extra attention to fire prevention. You can get suggestions from insurance companies through their inspectors or from the National Board of Fire Underwriters. Get your broker to arrange for it—and for the cost cutting that follows.

Reduce fire hazards by keeping all trash cleaned up, by having all wiring properly insulated, by installing fire shelters and extinguishers and by using approved containers for inflammable liquids. Be sure "no smoking" rules in prohibited areas are lived up to.

Check the possibility of premium savings through improvements in buildings,  equipment  and  services,  such  as: Fireproofing of your buildings. Installation and improvement of automatic sprinklers or other firefighting apparatus, fire escapes, etc. Improvement in your water supply. Maintenance of watchmen and private fire brigades. Arrangement for adequate inspection of premises. Provision for first-aid room or emergency hospital for industrial accidents.

Installation of proper guards on dangerous devices or operations.

See if your policies are eligible for cheap supplemental en­dorsement covering losses from tornado, explosion, riot, or aircraft damage.

OTHER FORMS OF BUSINESS INSURANCE

Take the time to consider other losses you might have. Here is a check list of important types of policies:

Business-earnings insurance. This protects against incidental losses directly resulting from a fire. It provides payments to meet ex­penses which continue while the place of business is being re­paired and compensation to cover the profits lost because of suspended business operations as a result of a fire.

Types available are:

Business-interruption insurance, which pays a business for loss of earnings resulting from a shutdown of the business caused by fire or other named peril.

Extra-expense insurance, which pays a business for the extra expenses necessary to prevent a cessation of the activities of a business following damage by fire or other named peril. This kind of insurance is commonly needed by businesses such as newspapers, laundries, and dairies, whose customers depend upon them for uninterrupted service.

Rent or rental-value insurance, which indemnifies the owner of real estate for the loss of rental income or of the rental value of his property should it be destroyed by fire or other named peril.

Workmen' s-compensation and employer s-liability insurance. This is a required coverage in many states for specified employers. It covers the liability of the employer imposed by law, regardless of fault, for injuries or occupational diseases sustained by his employees. Employer's liability coverage is afforded in the com­pensation policy to cover the liability of the employer to the employee where the compensation law is not applicable.

Casualty insurance. This protects the insured against loss from an unfortunate occurrence which happens without design or without being foreseen. It includes—

Contractual liability. Covers claims resulting from the liability of others which the assured has assumed under the terms of a lease, purchase or other contract.

Products' liability. Covers the liability of the assured for damages resulting from the consumption or use of any product manu­factured, sold, or distributed by the assured.

Druggists' liability. Covers the liability of the assured for the preparation, compounding, dispensing, sale or misdelivery of drugs, medicines or merchandise customarily handled by drug­stores. (A similar form is available to cover optometrists against claims resulting from improper fitting of glasses).

Elevator liability. Covers the liability of the assured resulting from the maintenance or use of elevators, hoists, escalators, etc.

Comprehensive liability policy. Provides all needed protection in a single contract. The assured pays a premium based on his actual exposures to loss hazards. Automobile bodily injury and property damage insurance may be included in the comprehensive policy.

Burglary and theft insurance. This covers the assured for loss of or damage to property resulting from burglary, theft, larceny, robbery, forgery, fraud, vandalism, malicious mischief, confisca­tion or wrongful conversion and against loss or damage to money, securities and other valuable papers resulting from any cause. Various forms of coverage are provided under this type of in­surance, such as:

Dishonesty, disappearance and destruction policy. Broad-form money and securities policy. Safe burglary and robbery policy. Storekeepers' burglary and robbery policy. Merchandise burglary policy.
Glass insurance. This covers the assured for loss or damage to glass, including the frames or sashes in which the glass is set.

Water-damage insurance. This covers the assured for loss or damage caused by water or other fluid to any property resulting from the breakage or leakage of sprinklers, or resulting from water entering through leaks or openings in the buildings, and includes coverage against accidental injury to sprinklers, pumps and other fire apparatus.

Boiler and machinery insurance. This covers the assured for loss or damage to any property of the assured resulting from the explosion of a boiler, heater or other fire-pressure vessel.

Credit insurance. This covers the loss to the assured resulting from the extension of credit or from the nonpayment of debts owed to him.

Fidelity bond. This guarantees an employer against loss caused by dishonesty of employees. There are different forms of fidelity bond designed to cover various types and sizes of business estab­lishments. Your agent or broker will gladly recommend the particular form  best suited to your needs.

License, franchise and permit bonds. You may be required by Federal, state or local government to file this class of bond. License bonds are sometimes required to guarantee compliance with regulations, laws or ordinances. Franchise bonds are needed, in some instances, to grant the right to conduct a business for the common good under certain specified conditions and guar­antee that service will be maintained. Permit bonds usually grant privileges to perform certain acts incidental to the conduct of certain types of business.

Bid and contract bonds. If you are going into the construction or manufacturing business or into certain types of mercantile business, you may need bid and contract bonds. These bonds are usually required from those who supply foodstuffs, fuel, building material, etc., to the Federal, state and local govern­ments, corporations and large industrial organizations, etc.

Comprehensive dishonesty, disappearance and destruction policy. This covers loss through the dishonesty of employees. In addition,

It will protect you against loss of money and securities caused by destruction, disappearance or wrongful abstraction and also against loss of other property due to safe burglary and robbery from your business premises.

It will protect you against loss of money and securities caused by destruction, disappearance or wrongful abstraction while being conveyed outside of your business premises by you, your partners, officers or employees, and also against loss of other property due to holdup or rob­bery while being so transported.

It will protect you against loss of securities caused by destruction, disappearance or wrongful abstraction while within a leased safe-deposit box on the premises of a depository (bank, safe deposit company, etc.) or from within the premises of the depository while temporarily outside the safe deposit box.

It will protect you against loss through forgery of your checks or other negotiable paper issued or alleged to have been issued to you.

Bodily-injury and property-damage liability insurance. This covers liability of the assured for bodily injuries and property damage in the operation of vehicles owned by him or vehicles of others occasionally operated by him.

Nonownership liability insurance. This covers the liability of the assured for any loss arising out of the use in his business of auto­mobiles not owned or hired by him.

Hired-car liability insurance. This covers the liability of the assured for loss arising out of the use of automobiles hired by him.

Medical-payments insurance. This provides for payment regardless of legal liability of medical, surgical, hospital and nursing ex­penses necessitated by accidental injuries to any occupant of the insured automobile, including the assured himself.

Collision insurance. This covers the loss through damage or destruction of the assured's car by collision or upset.

Garage liability insurance. This covers the liability of the assured for loss arising out of his operations as an automobile dealer, repair shop, storage garage or service station. It covers public liability not only for the operation of automobiles, but also for all work necessary in the conduct of the business.

Owners', landlords' and tenants' liability. Covers public liability on mercantile buildings, apartment houses, stores, vacant lots, etc., and provides protection to the assured resulting from the ownership, maintenance or use of the insured premises.

Manufacturers' and contractors' public liability. Covers the lia­bility of the assured for damages on account of accidents to persons not engaged in the employ of the assured due to any business operations of the assured.

Owners' or contractors' protective public liability. Covers claims against the assured caused by operations performed for the assured by independent contractors or subcontractors or their employees.

CONSIDER LIFE INSURANCE FOR YOUR BUSINESS

Business life insurance is insurance used to meet the hazards of loss by a business from death of someone associated with it. This insurance involves nothing different from the basic life policies. But it does require a special application to meet the problems peculiar to the business.

It usually involves more than the simple act of taking out a  personal  policy  payable  to  the  business.  The  many  legal, financial, tax and technical complications require careful study of the case by experts. Each business life insurance policy must be custom-tailored. Specific purposes for which business life insurance is written are:

Key-man protection to reimburse for loss or provide replacement in the event of the death of a key employee. Almost every busi­ness has one or more men upon whom it depends heavily for its major success. Frequently it is the proprietor or manager. It might be: the financial man, upon whose shoulders rest the firm's credit, either for providing new financing or for temporary credit needs; the sales manager or, in the case of a retail shop, the leading salesman; a chemist, engineer or scientist whose technical efforts produce the firm's lifeblood of ideas. Any one of those people could be of such importance to the business that his death would cripple it, or at least cause a setback until a replacement was secured. Key-man insurance provides insurance benefits at the death of this vital employee, so that the firm has resources provided with which to employ the successor in the competitive market.

Partnership insurance, to retire a partner's interest at death. A partnership automatically dissolves at or shortly after the death of any one of its partners. There is an especially vital need for life insurance protection to safeguard the business against forced liquidation. The adequate partnership insurance program accom­plishes several objectives:

It enables the surviving partners to reorganize at once and continue in business.

It liquidates the interest of the deceased partner without loss.

It enables the beneficiaries of the deceased partner to secure full, fair value for his interest in the firm, at once and with a minimum of trouble.

It lends support to the credit standing of the firm.

Corporation insurance, to retire a shareholder's interest at death. A corporation is not so directly and immediately affected by the death of a shareholder as is a partnership by the death of a partner. But unfortunate consequences are a distinct hazard. With the transfer of the shares of the deceased stockholder, new stockholders—new to management and possibly an unknown element—may come into the picture. Sometimes, too, the stock­holder's death may deal a severe blow to the firm's credit. An adequate corporation insurance program on the life of the share­holder, to provide retirement of his interest at death, meets both these situations. It gives the deceased shareholder's heirs full value of his interest at once. It reduces the shock of changes in ownership. This is of special concern to the small corporation where the shareholders are few. Their interests keep them close to the management of the firm, shareholders and management possibly being one and the same.

Proprietorship insurance, to provide for maintenance of a busi­ness upon the death of a sole proprietor. This effects continuity for the business. It provides the proprietor's dependents or heirs with sound valuation of the business at his death. It is the nearest to ordinary personal insurance of all types of business insurance. In the sole proprietorships, there are special consider­ations that should be recognized when writing the business policy. Included among them are:

Adequate provisions must be written into the policies to meet the conditions of a will or trust agreement concerning sale or liquidation of the business.

Selection of the beneficiary must be made according to the par­ticular situation; payment of premiums should be established definitely according to the best interests of the plan.

One plan may call for sale of the business to stated employees, with the purchase money provided by the insurance; another may provide that the business be run by the executor or the heirs; in still another, a trust company may be named as beneficiary and management control may be established. The specific plan is important, however. Many a small business flounders upon the death of the sole owner merely because he did not provide the business insurance with which to main­tain it.

Insurance to aid the firm's credit status, covering the owner or key man during the period of a loan or the duration of a mortgage on property held.

Insurance for emergencies. Most business life insurance plans utilize life insurance which has cash values. These cash values, growing over the years, provide the firm with a valuable reserve for emergencies, in the event of any sharp dislocation in business conditions. Where necessary, the policy cash values can be used as the basis for loans.

If you contemplate the business life insurance plan, call for advice. Consult three experts to make certain that every angle of the firm's interests is being safeguarded—your CPA, attorney and life insurance agent. The last-named gives the tech­nical advice concerning the arrangements of policies. The first two provide the essential information on which the plan is based and double-check it when it is completed. Remember these im­portant points:

Tax factors, both income and estate, are involved in almost all business life insurance arrangements. A plan should not be set up which will unnecessarily involve addi­tional taxes. On the other hand, too much weight should not be given to the tax angles. They often change, and the plan set up today on the basis of a certain tax advantage may prove to be disadvantageous next year, if a new tax law is enacted. This, too, is a matter that should be left in the hands of the experts.

Once established, the business life insurance plan should receive, carefully and periodically, a checkup by experts. Finan­cial conditions change, tax laws vary in effect. Valua­tions of the interests of the owners are never constant. A host of changing conditions can affect the plan and it is important that the details of the plan be kept up to date at all times.

Revaluations should be written in, whenever necessary, on part­nership and corporation policies.

Every new tax law suggests need for a special checkup to make certain the tax angles are still adequately covered.

At least once each year, the plan should go through this careful screening by the life insurance agent.

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