By Paul Kotnour, Chartered Life Underwriter & Chartered Financial Consultant
Like other business owners, framers often concentrate on making a profit and give less attention to the more mundane details of accounting, legal matters and insurance. However, these issues are essential for the total success and profitability of a business. Review these areas as you design your insurance program.
General liability policies offer protection for bodily injury and property damage. The primary concern for all retail businesses is injury to customers in the frame shop or on the property. Claims in this category generally are the results of slips, trips and falls. Framers who do installation services have an increased exposure to property damage at the site of the installation. Having the proper liability limits is crucial.
A basic limit of at least $500,000, along with an umbrella-liability limit of $1 million or more, should cover most claims, depending on the size of your business. These policies are usually reasonably priced.
You should also consider employment-related practices liability and employee-benefit liability. Employment-related-practices liability protects against suits claiming discrimination in hiring, promotion, pay and termination, as well as other business practices relating to employment. Businesses providing benefits such as health insurance or retirement plans should consider purchasing employee-benefit liability. This coverage provides protection for errors and omissions in the administration of these benefit programs.
Building & Personal Property
If you own your store, you generally provide the primary insurance. Know the amount of coverage you have and what it would cost to replace the building. Insure the property on a replacement-cost basis but make sure the coverage limit is adequate. Also consider the deductible amount, the amount you feel you can financially afford to assume. The general practice is to select a $1,000 deductible.
If you lease your space, pay particular attention to the insurance provision in the lease. Your lease may require you to provide primary insurance on the building, building glass or other items.
You should pay particular attention to any improvements or betterments you make at your own expense to the property. Your lease may not address such improvements, which may include adding or removing walls, installing flooring, or improving lighting, and your policy must cover these items. You must obtain written permission from the building’s owner for any changes you wish to make.
Just as with building coverage, you should determine the amount of coverage you need on a replacement-cost basis for your shop equipment, office furniture and inventory. Also consider the amount of the loss you are willing to absorb: your deductible. Depending on the size and scope of your operation, you will want to address property of others in your care, as well as off-premises property coverage for you and your customers. In determining the replacement cost for the property of others in your coverage, be sure to include all of the property of others you have in your shop at any time.
Loss-of-business-income insurance reimburses you for lost profits due to an insured loss and may extend to include your employee payroll. It’s best to write this coverage in an actual-loss-sustained format, but you may instead choose a specific dollar amount for a specified period of time. You should review the specifics of these broadened coverages with your agent.
Extra-expense coverage will reimburse you for extra costs you incur over and above what your normal operating expenses would be for you to get your business up and running after an insured loss occurs.
Extra-expense coverage includes expediting expenses to get in equipment and stock, as well as increased costs to set up and operate at an alternative location.
The same coverage issues apply to both owned and leased vehicles that your business uses. Most insurance agents recommend a limit of $500,000. An umbrella-liability policy extends excess liability coverage beyond your basic limit.
Uninsured and underinsured coverage generally carries the same limit as a liability policy and provides coverage for medical needs.
The physical-damage portion of the policy provides you with comprehensive coverage for fire, theft, vandalism and glass replacement, along with coverage for collision with another vehicle or an object. Most agents recommend a deductible of $250 for comprehensive coverage and $500 for collision coverage. Consider a no-deductible, full glass coverage rider for a small fee, along with coverage for towing and reimbursement for rental vehicles. Consult with your agent about limits and premiums.
Make sure that the title to any owned vehicle insured on a business policy is in the name of the business as it pertains to insurance. If you lease the car—whether from a leasing company or an individual—secure a written lease to reduce the chance of claim denial.
Frame shops with employees generally need to purchase a workers’ compensation policy, even if the business only occasionally hires help. Each state has its own laws regarding policy requirements. Some states have inclusion or exclusion elections regarding business owners and close family members. Consult with your agent regarding these and other state-specific issues.
If you, as the owner, choose not to purchase workers’ compensation coverage, you should consider a disability-income policy to provide income if you become disabled. It will also free up funds you would normally take in income to increase the pay of whoever absorbs your duties and responsibilities. You would also need an individual- or group-health insurance policy to cover your medical needs.
Consider developing an employee-safety pamphlet or manual with safety procedures to follow on the job, including procedures for reporting unsafe conditions and injuries.
Business Continuation & Key Employees
As the owner of your business, consider who would be in charge of the operations if you were gone for an extended period of time, how well-trained this employee is in all aspects of the business operation and how this employee would then receive compensation. Consider what would change if you were to die. Consider whether someone in the business would want to buy the business and whether this employee would have access to adequate funding to do so. If you employ such an individual, you may want to purchase a business-continuation insurance policy addressing a written buy-sell agreement that life insurance would fund.
Determine who is absolutely key to the success of the business operation. You may have a lead framer, a production coordinator or another employee that you heavily depend on. Give consideration to the value that this person brings to the business and the financial effect of this person’s death or disability. You may choose to insure this individual with key-person insurance to compensate the business for lost revenue and production if this key person were to become disabled or to die.
Shop owners operating successful businesses face many challenges. You can ease the matter of insurance decision-making with the aid and consultation of a knowledgeable and qualified insurance agent. Consult with this agent at least annually to review your insurance in detail. The agent should review not only what policies you currently have but also areas of exposure your insurance program does not currently cover.
Other Coverage Considerations
– Data breach: This coverage is more recently available for small businesses and is reasonably priced for the industry. It covers both electronic- and paper-file data breach.
– Detached signs
– Cash and checks
– Credit card receipts
– Data, media and programs
– Floods and earthquakes
Paul Kotnour has worked in marketing business insurance for nearly 40 years. In addition to insurance marketing, he has helped clients and attorneys establish business continuation plans, retirement plans and estate plans. He has also marketed health insurance, retirement plans and disability and life insurance. He holds the designations of chartered life underwriter and chartered financial consultant. His wife, Pat, owns and operates a framing gallery, so he has an intimate knowledge of the exposures the industry faces today.