Insurance for your Business in Orange County

 

 

You may never need to use your insurance, but it is a good idea to have it.

Surf’s Up There were a lot of seminars a few years back that sold the concept that you can make yourself non-liable and therefore implied that you don’t need to pay for insurance. (This is a bit off topic, but it’s important.)  Examples of these schemes include Nevada Corporations, Off –Shore Trusts, Limited Liability Companies, Corporations in Foreign Countries and even out of state corporations and Limited Partnership schemes.  But if you are the principle person doing the business, it is easy to pierce the corporate vale by just adding your name to any litigation.  These legal entities have also been touted as a way to deal with bad credit.  People selling these schemes explain that by forming a business entity banks, landlords, and insurance companies will rush to do business with you because you are using “business credit.”  We’re not sure any of this is true.  As for the magic “business credit,” your business will have what is referred to as a “short file” and not have a credit score.  Most lending, insurance, and rental will still be done based on your personal credit history.  Feel free to talk with your banker, insurance company, licensed attorney, or real estate agent before you invest in one of these schemes.  See How to Organize Your Business for Legitimate protections you can get from business organizational forms. It’s simpler to just use the money you will have to pay for these schemes—corporate filing fees chartering fees …–to buy extra insurance.

 

Home Based Business

If you are running your business out of your home, the easiest insurance may be a rider or endorsement on your homeowner’s policy.  Make sure it covers liability and not just property damage.    If you rent, you may be able to get a rider on your renter’s policy.  But understand that your landlord’s policy will not cover you.  It is best to discuss your home based business with your agent or call around and talk to other agents.  If there is a loss based on your business activity, your homeowner’s/renter’s policy may not cover it.

By the same token, it is unclear whether your auto policy will cover you if driving for business while a loss occurs.  If you are doing normal driving to work or running errands, it probably will.  But if you have a limousine company or a speedy delivery business it will not.  If you are dropping something off at a customer’s house on the way to the mall your auto policy may or may not cover you.  it’s not clear.  And there may be a clause in the policy, which no one ever reads, that reduces your coverage to the state minimum.  Nobody really ever reads the policy.  Again, annoy your insurance agent–that’s what he/she gets paid for.

 

Insuring Leased Space

 

 

If you are leasing space, your landlord will require minimum coverage for property damage (Hazard Coverage) and liability.  You will also be paying for and insurance policy on the building through variable rent.  The minimum limits on your policy and the building policy are supposed to work together.  But remember they are only minimum property coverage and the building’s liability coverage generally does not cover your actions even though you pay for it.

 

There are three key points to understanding insurance in my opinion.

 

  • Don’t try to understand rates.  If you are buying business insurance for the first time shop around.  Unlike auto insurance there may be only a couple companies selling policies for your type of business.  Talk to a few agents that represent different companies.  Generally there are all these hard and fast rules that may block some company from writing insurance for you.  Such as there is a restaurant in the building so the business three doors down cannot have coverage.  The big three insurance companies Farmers Allstate and State-Farm do write some business policies, but there are a lot of other companies that write only for businesses.  Your rate may be based on things that you cannot have immediate control of such as your credit rating, your claims history and how long you have stayed with your current companies.
  • Insurance is different from a savings account.  Yes you pay in, but don’t think you should get your money out.  If you put in a lot of claims, or call your company to see what they will pay for they may not renew your coverage.  You will have to get coverage at a possibly higher cost company in the future.  It makes financial sense in most cases to try to shoulder some of the risk yourself by having a higher deductible–you don’t want to put in a lot of claims anyway, and the insurance company does not want to pay to process a bunch of small claims.  Just pay for the small stuff yourself.

 

 

Surf’s Up–Controlling Your Costs If you have a specific risk to your business, you can get specific coverage for that.  In Orange County it’s important to think about Glass Coverage for a slight additional cost.  This might not seem like a big deal, but those large storefront windows are expensive.  They are made out of a special safety glass called tempered glass.  Although this may seem contradictory to the point made above about high deductibles, it is so common for the thugs we call “taggers” to do damage in our area that it’s worth the extra cost.  These thugs have started scratching into glass with sharp objects and etching into glass with acid.  In most cases, the only way to fix this is to replace the glass.  There is one company Threes Company glassrestorationplus@gmail.com   http://threescompanyservices.com/ that uses grinders and polishers to get light scratches out.  But since it takes about four hours to do a small area, it’s expensive.  Also see special film that can be applied to glass. And as part of your premises, you get to pay for repairing the glass windows and doors.  In many cities you can be fined if it’s visible from the street.

 

  • More insurance does not necessarily cost a lot more.  The math guys refer to this as a non-linear relationship between coverage and premiums.  All it means that you can add extra liability overage at a low cost.  You won’t double your premiums if you double your coverage.  Ask your agent how much it costs to buy an extra $500,000 of liability coverage.  You will probably never need it, but if you do you will be glad you paid for it.  The landlord’s minimums are just that—minimums.

 

Surf’s Up Save your insurance policies.  If there is a product liability issue or other problem that comes up from the past, your current policy might not cover it.  You need to save your old policies, or at least endorsement statements.  Insurance covers occurrences (bad things that happen) during the term of the policy.  In other words, your current policy will not cover a claim if the damage occurred during a previous before the current policy was in place.

 

 

Worker’s Comp

 

If you will be hiring employees, you will probably want to have workers-comp insurance.  If you have workers classified as employees—you set their hours, manage their work, and buy their tools …–you need this coverage.  Just like with the schemes above, some people will tell you that you can just call these people as independent contractors instead of employees.  Generally this is not true.  Liability coverage for your business may not cover an employee who says she was injured on the job.  And in California there are, believe it or not, people who prefer to say they have been injured than work.  Since this is not a legal site, we won’t get into this not.  The only legal advice offered is: Welcome to California—pay up for workers comp.

The rates are based on job classification as determined by the insurance company and hours worked.  So you might talk to a few agents and get different quotes.  You cannot get workers comp insurance on your self.

 

Disability Insurance

 

You will pay for disability insurance through your payroll taxes to the EDD.  But you may want to purchase additional insurance on top of that.

One mistake business owners make is that they assume the State’s disability insurance will cover them, or worker’s comp will cover them if they get injured and cannot work.  In most cases, this is not true.  It is not possible to get workers comp insurance on yourself, and if you as the business owner you do not pay payroll tax on your profits.  So you will not be covered by the State’s disability system.  You may or may not qualify for social security disability.

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