Insurance Basics for Business Owners
It makes sense to protect the business that you have worked hard to build. But how do you know which policy types will provide you with appropriate coverage? We’ve provided a quick primer on insurance basics for business owners:
Workers’ Comp – This state-mandated program covers lost wages and medical treatment resulting from a workplace-related illness or injury. Any business operating in Indiana must have a policy covering their employees, regardless of the type of work performed. Coverage of owners and officers, however, depends upon your business type. In Indiana, if you are sole proprietor or LLC member, you are not required to have workers’ comp but you can elect coverage. If you are part of an S- or C-corp, you are required to have the coverage even if you are an owner or officer because you are working for the company. Note that if you are the only officer of your corporation, you can exclude yourself, but all of your employees would still need to be covered.
As a cost-savings measure, many business owners opt out of coverage for themselves when they have a choice if they are already paying for personal medical insurance. In this case, a work-related claim would be covered by that policy so there is no need to pay the extra premium of workers’ comp.
Premiums for workers’ comp are based on a cost per hundred earned ratio, which changes based on an employee’s job classification. As a rule, the higher the risk to perform the job, the higher the premium will be. As your policy rates are set by classification, it is very important that your employees are classified correctly. If you end up with a claim on an incorrect classification, you will owe the cost differential. An insurance agent can help you through the process.
Finally, remember that your workers’ comp insurer will audit you each year to confirm your payroll. Most will ask you to fill out their own form or to send them a copy of your Form 941 Employer’s Quarterly Federal Tax Return. However, some insurers may elect to pay you a visit at your office!
Commercial Liability – Liability insurance products cover the costs associated with litigation. Every business has exposure for general liability. It could be small, like someone falls while visiting your office. Or, it could be large, like the HVAC installed by an uninsured subcontractor ends up causing the home you built for your client to burn down. Commercial liability polices cover bodily injury or property damage only, not errors or omissions. Coverage and premiums are based on the premises and operations of your business, so work with a knowledgeable agent to make sure you are correctly covered.
Business Umbrella Insurance – Umbrella policies fill the liability holes created by the limits of standard general liability policies. Coverage applies to bodily injury and property damage as well, but where general liability policies are usually capped at 1 million per occurrence, umbrella policies expand those limits. It is important that your umbrella policy follows the language of your general liability policy, ensuring that both cover and exclude the same losses.
Employee Practice Liability – EPL insurance protects your business in the event an employee alleges discrimination, sexual harassment or other employee-related issues. As the employer, you are protected against inappropriate behavior by a manager, or the wrongful termination of an employee. Your employees are protected also, by having recourse in the event they are placed into an uncomfortable work environment. EPL policies provide for coverage of defense fees and awards.
Education is the key to reducing the risk of these types of claims. Regular training of management and non-management employees helps ensure all parties recognize, report and document employee–related issues so they can be rectified. Having procedures in place not only creates a better work environment, it also lessens the risk of litigation awards to plaintiffs who do not follow the set protocols.
Ensuring you have the correct coverage for your type of business can save you a lot of headaches if a claim comes your way. The WIFS Team can help you sort through the policies, classifications, and costs. Send us an email or give us a call at 317.663.4138 for more information.
