Take Coverage

Entrepreneur, Sept, 1999 by Robert McGarvey

* UMBRELLAS. What happens when a lawsuit someone files against you brings in a verdict that exceeds the limits of your liability protection? It's bad news for you, unless you have umbrella protection, which provides, usually affordably, for "super limits" on protection, says David Sterling, president and CEO of Sterling & Sterling, a Great Neck, New York, insurance brokerage firm. An umbrella kicks in only when the ceiling of the basic, underlying policy is reached; that's why it's cheap. The umbrella issuer is betting you'll never exceed your basic policy limits. Buy an umbrella policy, and you can dramatically extend your coverage for a small amount of cash. How much coverage do you need? That's your call, and your answer will hinge on the size of your business and the size of jury awards in your state. A local insurance agent should be able to guide you in picking an amount of coverage that will bring you peace of mind.

* EMPLOYMENT PRACTICES INSURANCE. "Ten years ago, this coverage was non-existent; now it's widely available," says Olmstead. And it's also widely needed. If an employee sues your company for sexual harassment, wrongful termination, job discrimination, or any of the other increasingly popular claims alleging failures in your employment practices, this coverage kicks in with money so you can mount a legal defense and, if necessary, pay a settlement or damages. "There should not be a business without this coverage. Get it," says Sterling. He pegs the typical cost for a business with less than 100 employees at about $5,000 per year.

* WHEELS. "An automobile owned by a business must have a commercial liability policy [covering it]," says Flannagan. Think you can get by simply tacking company cars onto existing personal policies? Don't. In the event of a claim, an insurance carrier might be able to void the policy for misrepresentation. "A commercial policy will cost at least 25 percent more than a personal policy, but you need it," says Flannagan.

However, there's a bonus that comes with commercial coverage. A nominal sum - often just $25 per year, says Flannagan - will let you add on hired and nonowned auto coverage. This is insurance industry jargon that translates into coverage for employees who use their own cars for work-related tasks (remember that pizza pick-up that could have wiped out your business?) and may also cover rental cars when you travel on business (read the fine print or ask your agent to be sure). "Hired and nonowned coverage is a real bargain. And almost every business needs it," says Flannagan.

* PROFESSIONAL LIABIlITY. "Service businesses need this coverage, but a majority don't have it," says Sharon Emek, CEO of Metro Partners, a New York City company that manages insurance agencies. Professional liability covers cases in which a client experiences disastrous results after following your advice - and sues for damages. General liability policies don't cover these risks, but professional liability coverage does, and it's inexpensive. The peace of mind is worth the few dollars it costs.