What is key employee or key man insurance?

Key person insurance is a business insurance policy which is taken out to protect the business from the loss or long term incapacity of a key executive or employee of the company. While there is no clear definition, this form of business insurance has become very popular and sometimes required by a lender to secure financing for the business.

By purchasing key person insurance, a business compensation for financial losses in the event of the death or disability of a key employee. This insurance will also allow for business continuation during the hiring and training of a replacement. By minimizing the impact of the death or loss of a key employee due to disability, creditors, customers, and employees are assured the business can continue to operate with minimal impact and operating as usual.

Often used to insure management and ownership, key person insurance is being used more and more to insure employees whom make significant contributions to the operation of a business. For instance, a top sales person who represents a high percentage of the company’s revenue may need to be considered for key person insurance. Another example may be a service person that outperforms their colleagues or may have a specialty no one else may have.

Key person insurance is sold as life insurance and also as disability insurance. The business is the beneficiary of the policy which may then use the proceeds as necessary to continue operation of the business.

It may be time to ask your licensed insurance professional about key person insurance and business continuation planning. Your insurance professional can help you in evaluating who may need coverage and what value should be placed on the policy.

There are many myths about commercial insurance you need to know and understand.

From time to time, almost every business owner asks themselves, “Do I really need commercial insurance and keep paying this premium?” The answer is always the same, “YES!” No matter the rationale, no matter the explanation, the bottom line is every business needs insurance. Exposing your business to risk, no matter never having a claim is not the way to go.

Myth number 1: “No one will ever sue my business.”

This often sounds like, “You can’t squeeze blood from a stone.” Or any number of similar statements. The fact is every business and everyone can be sued. Once a judgment is rendered, a persistent attorney can file a judgment lien which doesn’t go away. Assets can be frozen or seized and wages garnished. In fact, lawsuits are on the rise. Not having the proper insurance coverage to defend against a lawsuit is playing Russian roulette with your business’s future.

Myth number 2: “I set up a corporation, I am 100% protected.”

Facts what they are, a corporation protects the officers and owners from actions or damages against the corporation. However, that corporate shield can be pierced or even stripped and a business owner held liable personally. A business and its owners are legally liable for any action that hurts others. Even if a company is incorporated, owners can be sued personally for their own actions in the company. They risk losing their personal assets and perhaps even their home if a liability lawsuit against them is successful. Without doing a case study, the smaller and newer the corporation, the more likely this could happen.

Myth number 3: “Nothing will happen to me.”

This is a big one, it sometimes sounds like, “If something happened to me the business will take care of my family.” Most businesses don’t survive the death of a principle. Often, the business is dissolved to pay off obligations. This leaves the family and the employees of the business devastated. Have an exit strategy and contingent plan in place and fund it through business insurance.

Like most retail businesses, it is important to have good business insurance in place to protect the owner, the employees, and the assets of the business. It’s extremely important to have the business insurance in place prior to opening the business.

No matter whether a salon, spa, or a combination of services, every business needs to have the proper insurance. Three basic insurance needs any retail business will have is general liability, property insurance and if there are employees, workers compensation. In addition, we’ll look at some insurance coverage that a spa or salon should also carry.

First, let’s review general liability insurance. General liability insurance will cover the business in the event a lawsuit is brought for personal or property damages. Say someone falls in the lobby, the general liability insurance would cover any legal fees, court costs, and judgments against the business.

Second, is the property insurance for the business. Generally, property and casualty insurance is combined for the best value. Property insurance will cover losses from damage to the building or its contents. The salon or spa can be in either owned or leased space. Casualty coverage will insure against losses or damage to the business.

Worker’s compensation insures your employees for any on the job injury. This policy will cover medical treatment, rehab, and pay a portion of earnings until the employee returns to work. In return for this type of coverage, in most cases it prohibits the employee for suing the business.

Two other forms of liability insurance should be considered by the spa or salon owner. The first is professional liability insurance. If a client sues for damages as a result of worked performed, or negligence, the general liability policy may not cover this claim. The second type of additional liability insurance is product liability insurance. If the salon or spa is selling products to clients for home use, this coverage should be seriously considered, even if the products are not manufactured by the business.

Salon and spa owners need to work with a licensed insurance professional to best determine the proper coverage for the business. An insurance professional will walk you through thought the types of coverage available and how best to develop an complete insurance package.

The biggest insurance planning needed.

Several years ago, you took a risk and started a small business. Through many lean moments, long hours, and perseverance, your business is growing. You’ve added some employees and now can actually take a vacation again with the family. But is everything really in good shape?

A sad fact of life is people die, even successful small, medium, and large business owners. Another real sad fact is these business owners never thought about what would happen to their business, their employees, and their families if they did. In fact, they mistakenly believe the business will take care of their family and itself when the reality is many, many businesses just die along with the owner because of a lack of planning.

You have a lease or a mortgage, capital loans, payroll and other obligations which need to be paid. You may have some personal life insurance for your family but can your estate be held liable for expenses owed by your business? Do you have partners or investors in your business? If you die, can your spouse assume your role in the company? How quickly? What will stop your employees from jumping ship and taking clients and even assets with them?

Every business needs a continuity plan in place funded by life insurance for the owners and investors. A ‘Buy–Sell Agreement” in place will insure your spouse and family are taken care of and your business will have a far better chance of succeeding.

The Buy-Sell Agreement will purchase the value of your ownership from your spouse while allowing the remaining partners to focus on the day to day operation of the business. If you’re a sole proprietor, a succession plan will essentially work the same way. Insuring the obligations are met and your family taken care of through life insurance.

Sit down and have the difficult discussion of developing a succession plan and strategy to put into place in the event of a premature death. Your licensed insurance professional can show you various scenarios and how to have adequate funds through life insurance to finance these options.

Insuring your small business is a must to protect the assets of both the business and the owner. Any business will be exposed to a variety of risks. Two major areas of coverage needed are property and liability. Both of these types of coverage and more are available as separate policies or combined in a business owner’s policy.

Business property insurance will cover buildings and contents, and some equipment. Inventory and office furnishing for example will be covered. This coverage will cover for damage from accidents, thefts or fire. It’s important to note that certain property damage from natural disasters like flooding, hurricanes or earthquakes may need separate insurance. It is important to work with your licensed insurance professional to determine what coverage is included and what risk may still exist.

General liability insurance protects the business against a lawsuit for personal injury or property damage. It will cover the cost of the lawsuit as well as damages. No matter how much care is taken, a client can perceive your company did them wrong. One lawsuit and award of damages can financially ruin any size business.

Talk to your insurance professional about combining these insurances if possible into a business owner’s policy, or BOP. In addition, other coverage such as business interruption or crime insurance may be added.

It’s important to understand that professional liability, or errors and omissions insurance is not included. Talk to your licensed insurance professional to determine if you need E & O insurance. Understand what is covered in your business insurance and what is not. Ask specifically for the inclusions and exclusions of your small business insurance. Together, determine the most affordable and comprehensive insurance package for your business.

What types of liability isn’t covered by my general business liability insurance?

General liability insurance is the most prevalent form of business liability insurance. These policies are designed to protect your businesses against occurrences when someone alleges they were injured or their property was damaged as a result of your company’s negligence.

Your general liability insurance excludes some types of liability coverage, worker’s compensation, professional liability, liability related to operating an automobile or truck, and corporate directors and officer’s liability. These liabilities are covered by other specially created policies to protect your specific business.

Most general liability policies will also exclude coverage against claims of pollution.  businesses using toxic materials in the manufacturing process or store or transport them must purchase a special environmental liability policy. Lot’s of businesses keep gasoline on the premises for their own use. Because storage tanks can leak over time, allowing gasoline to seep into wells and other water supplies, federal law requires all tank owners to have insurance or show some other means of paying for potential claims. Also excluded are claims resulting from damage to the property of others in the business owner’s care, custody and control. This is because coverage for such damage is covered under property policies.  Talk about chemicals and usage as well as storage and transportation in detail with your agent or broker.

Any products produced or sold are generally also not covered by the general liability policy.  Product liability insurance is sold as a separate coverage.

The most common exclusion for the typical general liability insurance policy is claims of professional negligence or errors and omissions. If the damage resulting from serious negligence on the part of a client or one of their employee’s resulted in non-physical damage, your general liability insurance will not cover the suit.  In this instance, professional liability insurance, also known as errors & omissions insurance will cover a claim of negligence.

Review your liability coverage in detail with your licensed insurance professional.  Take the time to understand what is covered, and most important, what’s not.

What insurance is needed for my business?

Choosing the proper insurance and coverage amounts can be overwhelming.  Let’s look at the typical business insurance needed by almost any business as well as some additional insight to other coverage available which may fit your business.

Understanding the language in an insurance policy is important.  Work with a licensed insurance professional along the way to help you understand the specifics of your policies.  It’s important to understand what’s not covered as much as what is.  Don’t be afraid to question your agent regarding the specifics of any coverage presented.

Purchasing insurance, or risk management is generally a department of a big company, but even in a start up, the business owner has to assume that role.  Your licensed insurance professional becomes your number one resource in determining the risk you and your business have and help you determine the coverage necessary to reduce that risk.  In addition, your state department of insurance is a great resource.  Pick up the phone or even jump in your car and get the necessary information.

Generally, most businesses will find 3 primary areas of risk which need to be addressed.  The first is property insurance.  Property insurance protects your business property and inventory against loss or damage by accident, theft, or another cause or by another party.

Often, your property insurance may be purchased in conjunction with your liability coverage.  These combined policies are often sold as Business Owners Policies or B.O.P’s.  The second is general liability insurance.  Liability insurance protects the company against claims of injury either bodily or physically.  This would protect you in the event of an accident at your business or in another location where you or your employees are conducting business.

As noted above, general liability protection is offered through a B.O.P.  In some cases, a business may also need professional liability coverage.  Discuss professional liability with your insurance professional.  Medical Malpractice Insurance is an example of professional liability insurance.

Finally, if you have employees, workers compensation is required in most states.  This insurance covers medical and loss wages to an employee injured conducting company business.  It also protects the business from being sued by the employee.

Disability insurance is necessary in several states.  Check with your licensed professional and the state department of insurance in your state.

Develop an insurance plan with you licensed insurance professional to assess the risk and develop a comprehensive insurance package that fits your specific needs.  Remember, your insurance agent and the companies represented are tremendous resources available for you.

What should I do if I am not happy with my agent?

Businesses and owners have different needs and sometimes personalities don’t mix.  Flower shops, restaurants, delivery services all have different needs and risks. What works for one and the agent servicing that business may not be a fit for another.

The words ‘value’ and ‘service’ often over used in advertising and even in the business insurance world.  Value is often subject entirely to an individual’s preference, and let’s face it; we all expect good service in any vendor/customer relationship.  So, let’s look at what expectations you can expect your licensed insurance professional to offer you and your business.

You should expect any call to your agent to be returned within 24 hours at a minimum.  An emergency number should also be provided in the event a claim is necessary during nights, holidays, or weekends.  It’s ok if the carrier provides this and not your agent.  Just be sure this number is available.

Having an annual review is critical.  An annual review is NOT here are the latest premiums, sign here.  Instead, you should expect a review of your business, what’s changed, and what has changed with your licensed insurance professional.

Depending on the type of business you have, the risk your business carries, and how fast your business is growing or changing, we also recommend a quarterly update phone call.  More contact or less needs to be determined with your licensed insurance professional and yourself depending on what you feel is important.

Make sure your agent has an interest in your business and your success.  Have they visited your site or at least asked for photos of the various equipment and location?  Make sure you are introduced to staff that may work on or service your account.  If it’s not a fit, you should feel comfortable saying something and getting someone new.  This is your business and you need to partner with an agent you can work with.

Set the expectations of what you expect from an agent or broker and find the right one to fit your needs. Your licensed insurance professional needs to be part of your advisory team.  Someone you can trust and turn to for advice and recommendations important to the success of your business.

Should a retailer purchase product liability insurance?

Often, manufacturers will need product liability insurance.  Retail stores also need to consider product liability insurance as well. Importers and distributors also need this kind of insurance. A retail store can be sued if a customer buys a product from them that causes injury or harm, even if they don’t make the product. In this case a lawsuit can be brought against the retail establishment and the manufacturer.

Product liability laws in the United States allow holding everyone responsible for that has anything to do with making and selling products. Large money awards because of injury claims can ruin any business if they do not have sufficient insurance for such cases.  Legal costs alone can ruin a business before a settlement or award is issued.

A fairly recent example of how product liability insurance works is tainted pet food manufactured in China.

The pet food was then imported into Canada and then distributed to two U.S. locations which supplied the tainted pet food to Wal-Mart which sold it to customers.  A number of pets died and barrage of law suits began.

The Chinese and Canadian were insulated from suits, and even if judgments were levied, claiming restitution was impossible.  The retail outlet, in this case, Wal-Mart, ended up facing the numerous suits filed by unhappy cat owners.  Here is an example of how product liability insurance can easily save a business from financial disaster.

Product Liability Insurance protects a retail business against claims made from the sale of goods, products, medicines or foods sold to the public.  It covers the retail sellers liability for losses or injuries suffered as a result of purchasing a product by a buyer, user or bystander.  It covers defective products or product malfunction.  In some cases, it may also protect the seller from failure to warn.  Sometimes, this coverage is found within a general liability policy for a business as products completed operations insurance.

Sit down with your licensed insurance professional and review what is available to your specific business in regards to product liability insurance.  Check with your state department of insurance for any claims or incidents on file similar to your type of retail operation, product, or industry.

Remember, it is far harder if not impossible to hold a manufacturer outside the United States responsible.  A product liability claim will often name the manufacturer, wholesaler, distributor, and seller in the suit.  Don’t risk your business on being uniformed about product liability.

Won’t my homeowner’s insurance cover my home based business?

Contrary to popular belief and what some feel should be included in homeowner’s policies, they generally do not cover business losses.  Homeowner’s insurance policies are written to protect the personal and day to day use of your home.  Many policies will specifically exclude coverage as it pertains to conducting business and will only go so far in covering anything related to a home based business.

It’s important to understand the risk involved with operating a business, regardless of home based or not.  If nothing else, a home based business owner should consider purchasing a business liability insurance policy.  This insurance will cover claims due to accident or negligence if another party claims injury either bodily or to their property.

Depending on the type of business, it may make sense to explore the need for professional liability or errors and omissions insurance.  A number of businesses which may be home based starting out like an accountant, consultant, or computer/web hosting company should consider professional liability insurance.  This insurance covers claims of malpractice, negligence, or improper advice given to a third party.  This insurance will cover legal costs and awards which could cripple or put a small company out of business.

If your business is storing inventory, developing and manufacturing products, or has high end or expensive equipment or furnishings, you should consider some form of commercial property insurance.  This property insurance covers a wide variety of losses and in the event of fire or other types of damage.  This type of insurance should be reviewed carefully with your licensed insurance professional.

If your business has employees, then workers compensation insurance is probably required.  Again, your licensed insurance professional will guide you in developing an insurance program for today and beyond.