Other Costs of Insurance for Business Owners

As an insurance agent, I am asked about the price of insurance all the time. I know price is a very important, if not the most important, consideration for many business owners. This is always a great opportunity to discuss other “costs of insurance” with a business owner because some of these costs are often overlooked.

Overlooked costs include deductibles, coinsurance, audits, policy exclusions, the difference between replacement cost and actual cash value coverage, and unpaid claims. All of these costs can greatly impact a business owner in the event of a claim and should be considered carefully when evaluating an insurance program.

Insurance company underwriters often increase deductibles when particular types of claims have impacted a particular business, industry or region of the country. Increasing deductibles are also a tool used by underwriters to encourage business owners to take greater care in their operations to minimize the risk of loss to property or injury to people.

Coinsurance is a clause in most property insurance policies that can lead to high costs to a business owner in certain claim situations. It is very important to understand how coinsurance works and how you can avoid costs that can be many thousands of dollars!

A business owner should always understand if their insurance policy is auditable. An unexpected audit bill can come as a nasty surprise and could cost a business owner many thousands of dollars!

The most important part of insurance policies can be the exclusions of coverage. It is vitally important for a business owner to thoroughly review their insurance policy and ask questions if any part of it is not understood. Coverage exclusions can mean the difference between a business surviving a claim or going out of business due to an unpaid claim!

In most circumstances, it is better for a business owner to have replacement cost coverage as opposed to actual cash value coverage on their property policy. Do you know on what basis your business property is covered? With actual cash value coverage, property depreciation will be deducted before arriving at a claim resolution and depreciation can amount to many thousands of dollars.

I always make special effort to discuss these other costs with my clients and prospective clients because these other costs can amount to many thousands of dollars and can dwarf the premium cost. Ask yourself if you understand these other costs and whether you have addressed them in your current insurance policy. If you haven’t, now is a good time to review your policy and ask your agent any questions you may have.

Doug Timmons, CIC, CMIP

Marina and Resort Insurance Specialist

Commercial Risk Service