Business Insurance

Acquiring affordable business owner’s insurance that adequately covers your biggest potential risks is a process that takes some time and effort on your part, but the resulting security is worth it. Business insurance includes a diverse set of over a hundred coverage components while other types of insurance involve only a few. Auto insurance, for instance, only has five coverage components. This means that for proper coverage, each business requires a customized approach to analyzing its insurance needs. It’s a smorgasbord as opposed to a vending machine!

Steps in Getting Coverage

PREPARE A BUSINESS “COMMENTARY”

To help your insurance agent understand your business, prepare a one to two page description of your background, experience and scope of operations. The agent will use this information to weed out underwriters who have little interest in your type of business.

IDENTIFY EXPOSURES

The insurance agent can help with this, but if you have done a thorough job with safety precautions (see above), then you have a good idea of what risks your business is exposed to. Make a list of these risks, whether or not they are insurable, from most serious to least.

COMMON SPECIFICATIONS PREPARED BY AGENT

Armed with relevant knowledge of your business from the above steps and knowledge of the insurance industry, your agent will organize specifications for quotation and identify desired options. These specifications are transcribed into insurance policy applications.

WEIGH THE MERITS OF QUOTES GATHERED

Ideally, your agent will list each suggested coverage, including its particular cost factor, in order of the catastrophic potential that risk represents to the business. This way, you can make educated decisions about adding to or cutting back coverage to achieve the best cost/benefit balance.

Cost of Doing Business

The cost of business insurance is not prohibitive; however, replacing your studio and not being able to work are. CERF+ has seen too many businesses unable to bounce back after an uninsured emergency. Remind yourself that having good coverage is one of the costs of doing business and part of your responsibility to yourself, your business and others who depend on you. The rates for coverage will vary depending on where you live and which underwriter you work with. A basic business owner’s policy will cost between $400-$1,000 annually. Of course, every business is unique and yours may require special coverage, which can raise the overall cost. [end sidebar]

Things to Watch Out For

Proper protection — Don't be under-insured. If you can't afford complete coverage, purchasing some insurance is better than having none. Do avoid unnecessary coverage.
If you rent — Too often we hear from artists who didn't have business insurance because they thought they'd be covered under their landlord's policy. WRONG! The landlord's building is covered under his/her policy, but not your equipment, tools and inventory.
In-home studios — Homeowners policies provide little (typically $2,500 for business equipment) or no coverage for business related assets. You may be able to add endorsements to your homeowners policy, but for adequate coverage most in-home art business need a separate business insurance policy.
Gaps in coverage — Make sure you understand the scope of your coverage. If there are known gaps due to cost, understand what they are and make an alternate plan.
High deductibles — Be careful not to be tempted into purchasing a policy with a high deductible in an attempt to keep costs low. Can you really afford to pay a $10,000 deductible if something occurs?
Exclusions — Know what they are and don't be afraid to ask questions!
Quotes — Shop around and get at least three quotes; rates vary widely.
Stability of the insurance carrier — It’s a good idea to check the financial stability of the insurance company before signing up for the policy. Independent agencies, such as A. M. Best and Standard & Poor’s provide free basic rating reports on insurance companies as well as complete reports at a cost. There is more information on these rating services in Resources.
Good corporate citizen – Is your current or potential insurance carrier a good company to work with, or even licensed in your state? United Policyholders, FBIC and your state insurance commission’s office can help answer these questions. Details found in Resources.
Claims — Ask your insurance representative if any claims have been made on the type of insurance they're offering and what turn-around time you would expect in the event of a claim. If no claims have been made or you feel service is unreasonable, choose a different company with which to work.

Types of Business Insurance Coverage

BUSINESS PERSONAL PROPERTY COVERAGE

Building — Covers the physical structure of your studio.
Business Personal Property — covers the contents of your studio such as tools, equipment, raw materials, inventory in progress, finished products, valuable papers and records, and electronic data processing.
Business Interruption — covers the loss of business income incurred during the period of time your studio is closed due to an emergency.
Inland Marine — covers your work while in transit to shows or elsewhere. This can cover your work, booth, shelves, display cases, and so on.
Personal Property of Others — coverage for those who work on other people's property in their own studio.

GENERAL LIABILITY COVERAGE

Liability — Liability insurance protects you if someone is injured while on your property or if your property causes damage to others.
Umbrella — Protects beyond liability coverage, kicks in when all other liability coverage is exhausted, usually in increments of $1 million.

OTHER COVERAGE

Keep in mind that basic business insurance policies cover risks to property like fire, lightning, explosion, windstorm or hail, smoke, riot, theft, water damage, vandalism, weight of snow, and so on. It may be called "all-risk" coverage, but will most likely have exclusions. Often times flood, earthquake and acts of terrorism are not covered in a standard insurance package so if you feel at risk for these, you may want to investigate additional coverage. Understand what the exclusions in your policy are. Also know the amount or limit of coverage (e.g., up to $25,000 for studio contents, $25,000 for work off-premise, in-transit, etc.) and make sure you get as much protection as you need.

Extended Business Income — extends payment for losses of business income beyond Business Interruption coverage time limits.
Extra Expense — pays for re-location of your studio, if necessary, due to a significant loss.
Employee Dishonesty — covers losses due to dishonest acts of employees.
Product Liability — covers you in the event your product injures someone.

Video from Insurance Information Institute about BOP's or Business Owner's Policies

Finding an Insurance Representative

Finding a good agent or broker should be relatively easy if you ask friends and/or colleagues whom they use. Make sure to choose a representative you feel comfortable working with, someone who is communicative and responsive to your needs. You may decide to work with an agent who represents a specific company or companies, or go with a broker who independently and directly represents you to the marketplace. Brokers may offer a broader range of coverage options because they represent you and not the insurance company, but either choice is fine. Just be sure your representative understands your insurance needs and helps you to design a package that provides the coverage appropriate to your situation. It's okay to be wary of insurance salespeople. A healthy dose of skepticism means you'll use good judgment when making your decision about who to work with and what coverage you're going to choose.

Summary

Only a third of artists assisted by CERF+ have business insurance. The cost of not having business insurance or having inadequate insurance can be devastating to any business.

We think it is vital that all artists take steps to reduce the chance of loss and acquire adequate business insurance. The cost of business insurance may be less than you think, and when approached with thoroughness and a proactive insurance agent, you will be sure to be getting the most complete and appropriate coverage for the money.

At CERF, we know that if every professional craft artist in the country took the steps outlined in this paper there would still be need for our emergency relief services, but we also know each dollar of assistance would go further. Please contact CERF if you need more assistance with your risk management plan.