Cover charge - small business insurance - includes related article

Entrepreneur, Feb, 1996 by Cynthia E. Griffin

Finding the right kind of insurance at a price that fits your pocketbook isn't easy. Drexel and Deanna Collins can testify to that.

The Cinnaminson, New Jersey, couple co-own DDAT (Distinguished Diversified Adventure Tours) Club Inc., which manufactures and sells T- shirts, jackets, lithographs, baseball cards and other paraphernalia from the Negro Baseball Leagues of the early 1900s. They sell their merchandise primarily through trade shows--and that was the crux of their insurance problem.

"At trade shows, we were always at risk because we didn't have any [show] insurance. And at one show, some of our things were stolen," recalls Drexel, CEO of the 4-year-old company. When the couple went looking for insurance, they found that some companies could provide liability but couldn't cover inventory if they didn't have a storefront or wouldn't protect them as they traveled. It took about two years, Drexel says, to find a company that could fulfill all their insurance needs.

Finding the proper insurance may seem like a daunting task, but it's essential to your business's continued success. And given all the things that can go wrong, putting in a little effort to protect what you've built doesn't seem like such a chore, after all.

Helping Hand

A qualified insurance professional can make the process a lot easier by guiding you to the coverage you need. "Personal referrals are your best resource for finding an insurance professional," says Gene Fairbrother, a consultant with the National Association for the Self- Employed. "Call friends and people you know in the same business as you and ask for suggestions."

Sean Mooney, a senior vice president with the Insurance Information Institute, advises contacting your industry or trade association. In addition to providing referrals, some associations offer discounts on insurance or special insurance packages for members.

"Find a professional, qualified agent who understands your business's insurance needs," says Jim Belobraydic, a vice president with CNA Insurance Cos. in Chicago. "Make sure the agent represents at least one [insurance] company that specializes in your industry."

It's also a good idea to conduct an investigation of any company you're considering. Contact the Better Business Bureau, and call the state insurance commissioner or department to make sure the company is licensed to operate in your state.

Mooney also recommends checking the financial backgrounds of insurance companies, using publications such as Best's Agents Guide to Life Insurance Companies or Insurance Reports, Moody's Corporate Profiles, and Standard and Poor's Corporation Records. All are generally available in larger libraries.

Getting Covered

After choosing an insurance professional, the next step is determining what coverage you need. This is easier in some cases than others. The Collinses, for example, knew they needed liability insurance because their agreement with the Negro Baseball Museum, which licenses them to manufacture its products, requires it.

"Some forms of insurance are required," says Mooney. "In most states, for example, business owners [with employees] need to purchase workers' compensation insurance. You may also need to purchase property insurance as part of a lease, mortgage or agreement with suppliers."

Whether they are required or not, there are five basic types of coverage every business should consider, say Mooney and Fairbrother: property, liability, business interruption, life and disability, and workers' compensation.

The first three are typically included in a business owner's standard insurance package, which most insurance companies offer. However, not all policies provide the same type of coverage.

"Our business owner policies are somewhat tailored to different industries and try to respond to the [needs] of many businesses," says Richard Callahan, a vice president with Aetna Life & Casualty Co. in Hartford, Connecticut.

Homebased entrepreneurs should not assume their business is covered by their homeowner's policy; in most cases, it isn't. However, homebased business owners can buy standard business owners' policies, and several insurance companies are developing products especially for them. Chuck Moran of Bollinger Fowler Insurance in Short Hills, New Jersey, says RLI insurance, one of the companies he represents, targets entrepreneurs working from home.

Here's a closer look at the three types of coverage offered by most business owners' packages:

Property insurance covers your physical location, the contents of your business and, to a limited extent, portable equipment. When reviewing this part of the policy, Mooney advises making sure you're insured for the replacement cost of your equipment, not for what it's worth at the time of loss.

"General liability insurance is the most common coverage for retail, service and homebased entrepreneurs," says Fairbrother. It protects your business from accidents and unintentional injuries to others by covering damage to property and personal injuries. It also assists you financially and legally by paying legal costs if you're hit with a lawsuit.