With Small Business Insurance, Look at What Is Excluded
As you look into small business insurance for your new company, it is wise to discuss with your agent all of those risks that are covered in your insurance policy as well as all items that are excluded from the policy.
Here is a list of items to discuss. You and your agent will think of more:
- Homeowner’s insurance policy. Assume that your homeowner’s policy covers nothing regarding your business and you will be more right than wrong. There may be some aspects of coverage but business uses are generally excluded from homeowner’s policies. There are various small business insurance riders that you can elect for your homeowner’s policy but they do have to be elected and paid for. For example, a full-scale business workers compensation policy—mandated by the states--can cost a pretty penny, depending on the business you are in. However, many companies will permit a workers compensation policy that will provide coverage for an "occasional servant" for just a few dollars. Similarly, there are other coverages that you might be able to get through your homeowners policy. Your agent can fill you in on the details but you may need as little as a business pursuits endorsement for a few dollars extra. While you are at it, you might discuss your other activities with your small business insurance agent. For example, if your spouse or live-in uncle holds a weekly garage sale at your residence, that might be considered a business and if someone is injured on your premises, you might be personally liable for the full amount of damages. If you have a child who regularly babysits at the residence, that could be considered a business as well. Make a list of any and all activities like the above mentioned and discuss them with your agent. If you are telecommuting occasionally, purchase an incidental office liability endorsement. If you rent part of your house or property, that is another red flag that you need to speak about with your agent.
- Flood insurance. Flood insurance is a special requirement that you will not find in virtually any homeowners or small business insurance policy. In fact, when you receive a new policy, the company is generally very upfront about declaring no flood or mudslide coverage in the policy. See section on Flood Insurance.
- Earthquake insurance. If you live in an earthquake prone area, you need to get special earthquake insurance coverage because insurance companies do not cover this. As far as we know, an business located anywhere on the surface of the planet earth could be subject to an earthquake, although they do tend to hit in active geological areas.
- Terrorism insurance. If there is a terrorist attack and you do not have special insurance for it, your typical policy will not cover damages. If your workers are injured in a terrorist attack, the workers comp part of your insurance will still pay for their injuries but none of your other losses will be covered.
- Nuclear attack. It is the same for a nuclear attack, insurance policies will not cover the damages.
- Workers compensation. While you can use the low cost workers comp policy mentioned earlier for an occasional servant, do not try to cover a regular employee with that policy. Further, some contractors used to have an old trick where workers were paid "off the books" and if they got injured, they would go on the books that day. Insurance companies and state officials will not stand for that and you will be subject to fines and criminal penalties. See section on Workers Compensation Insurance.
- Mold damage. Insurance policies will not pay for mold damage (without special coverage) so you need to speak with your agent about this. Besides harming your premises and machinery, mold spores can make some employees quite sick. So speak to your agent.
Check with your agent about other risks that you may need to insure against in your small business policy.
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