Small Business Insurance Checkup: Preventive Maintenance Is Essential to an Organization's Financial Health
For most people a preventive visit to the doctor for an annual checkup has become routine. Similarly, each year drivers have their cars inspected to ensure sale and reliable transportation. But too often, small business owners--including CPAs--don't take similar measures to ensure the financial health of their organizations by conducting an annual insurance checkup to make sure existing coverage still is providing needed protection against unforeseen risks. INSURE DAILY RISKS CPAs can help small business clients do an annual review of all insurance policies they have in place. Start by examining property and casualty insurance, including business property, general liability, business interruption and workers' compensation coverage. While most people select their property and casualty insurance carriers based merely on premium, encourage clients to look at more than policy costs. Check deductibles to see whether the client still can afford the amount of loss he or she is obligated to cover of can afford to raise the deductible to save some premium dollars. In addition to the nature of the policy and its terms, CPAs should look at the insurance company the client has selected as well. Check insurers' quality ratings through independent services such as A.M. Best or Standard & Poor's. Throughout the year CPAs should clip any news stories they read about a client's or employer's insurance company. Some companies' claims handling has come into question in recent years, resulting in coverage disputes. At renewal time CPAs should recommend clients ask the carrier about claims procedures and other concerns before they renew. If they don't get the right answers it may be time to switch insurance companies. The most important step CPAs can take with clients is to review each policy point carefully. Look for new exclusions; property and casualty losses can have a devastating impact on a small business, and some of those losses may no longer be covered or adequately protected. For example, fires often destroy more than inventory and machinery; they take with them key business records the company hasn't saved in off-site storage. Many insurers haven't updated property and casualty coverage to allow for the personnel costs of record reconstruction. In addition to making sure clients have back up procedures and files in place, review their business property insurance to see whether computers, software, machinery, inventory and the like are covered for full replacement cost. Liability insurance, which encompasses errors and omissions and professional liability coverage, protects business assets in the event a company is sued. CPAs should make certain clients have enough coverage to meet the potential exposure. Putting an exact number on that exposure is difficult, but here are two guidelines: * Learn flora history; research a recent liability settlement against a similar business and use it as a guide. * Base the amount of coverage on the business's potential exposure; determine a worst-case scenario and buy sufficient insurance to cover it. Business interruption insurance covers the loss of income an entity and its employees might experience if the business is temporarily interrupted by a natural disaster, loss of power or something as simple as the city's closing a street to install new water mains. The coverage pays expenses such as rent and mortgage and related costs until the business is back on its feet. PROTECTING YOUR FINANCIAL FUTURE One of the benefits of being a small business owner is that he or she can use business assets to protect family members and build personal wealth. Many of the means CPAs can recommend to accomplish this goal are funded by insurance. CPAs should emphasize this important goal as they help clients review their disability protection, business life insurance, 401(k) and other retirement plans, as well as their succession plan. …