Insurance and Total Financial Planning for Contractors and Small Businesses
Bonds
Insurance
Most Popular types of Insurance Required for Businesses:
Workers Compensation Required by New York State Law (There is a $250 penalty per every 10 days you have an employee without this type of coverage.) This covers the employee and the owner in case the employee gets injured on the job.
Generally, benefits under the Workers' Compensation Law are calculated at two-thirds of an employee's average weekly wage, subject to certain dollar limitations depending on the degree of the disability and ability to work. If the disabling condition improves and the worker's ability to work changes, the benefit level can be reduced. Partially disabled workers who remain capable of performing some work receive compensation at a lower rate. Benefits generally last as long as the person remains disabled.
The surviving spouse is eligible to receive death benefits in the amount of two-thirds of the average weekly wages per week, subject to limits set by law. The spouse receives death benefits until he or she remarries, at which time a final lump sum payment totaling two years of death benefits is paid. Surviving school-aged children share the death benefits with the spouse according to conditions and percentages set by the law. Certain other persons may be eligible for benefits in cases where there is no surviving spouse or school-aged child. There is also an allowance for reasonable funeral expenses.
Disability Insurance Required by New York State Law (There is a $250 penalty per every 10 days you have an employee without this type of coverage.) This pays the employee short term payments if injured, sick or otherwise disabled and cannot work.
NYS Disability pays 50% of your average weekly wages to a maximum of $170.00 a week for 26 weeks
Liability Insurance: This protects against slip and fall accidents from customers
(Usually most landlords require this in order to rent a store or office) The average cost $1000 to $2000 per year for a 1000 square ft store.
Prices for this type of insurance vary greatly depending upon the type of business, the sales volume and number of employees.
Fire Insurance- This is usually included as a package with liability insurance. It is usually relatively inexpensive and varies depending upon the amount of inventory, equipment type of building and renovations needed. Example of cost would be $400 per year for 50,000 of inventory
Theft and Burglary Insurance- This pays for your inventory and equipment if your business get burglarized or held up. You need to have a central station alarm system to qualify for this type of insurance. This will vary greatly depending upon the location. Cost estimate $1000 for $50,000 of coverage.
Business Overhead insurance
This type of insurance pays the owners rent, mortgage and other fixed business expenses in the event of a catastrophe. An estimated cost for a 1000-foot store and 50,000 of insurance is $1000 per year.
Bonds
Bonds state that they will reimburse a third party if a certain event does occur.
Example: If you own a cleaning service and your bonded employees steal something from your client while they are within the scope of their job then the insurance (Bond) company will reimburse the client for the stolen valuables
In order to obtain a liquor license in New York State, you need to obtain a bond that will guarantee the payment of fines or penalties to New York State.
If you are a construction company, you might need a bond that names New York City as the beneficiary in order to obtain a permit.
Bonds vary in price from several hundred dollars for small 10,000 bonds to several thousand for larger bonds such as construction bid bonds. The insurance company is guaranteeing payment to a third party and you are obligated to pay the insurance company. It is important to have a good credit score when applying for bonds.
Business Insurance
property and liability insurance for your business protect you from unforeseen disaster night.
You will get broader coverage and a cheaper premium by buying property and liability insurance together in what's called a "business owners" policy ("BOP") or "comprehensive general liability" ("CGL") policy.
Basic Property Insurance
You need fire, theft and damage coverage for:
- Buildings
- Furniture
- Equipment
- Inventory
- Accounts receivable records
- Vehicles
- Intangible property like trademarks or business goodwill
Insuring for Special Property Issues
If your business is in an area where floods, hurricanes or earthquakes are common, or if your business is prone to specific safety risks, such as glass breakage or toxic chemicals, you might want to check into the cost of extra insurance to cover those mishaps.
What Business Insurance Costs
Property insurance costs are based on actual cash value (meaning the market or depreciated value of the property) or replacement cost.
The cost of business property insurance will vary depending on whether you have a named-peril or an all-risk policy. A named-peril policy only covers losses from specific named perils, such as fire, smoke, and so forth. An all-risks policy covers losses from all perils except those specifically excluded from the policy. An all-risk policy will usually be more expensive, but it's important to carefully compare policies to be clear about what coverage you're actually getting.
The cost of property insurance also depends on the type of business you have, where your business is located, the structure of the building ( wood frame, masonry etc) the presence of safety equipment, such as water sprinklers, when the wiring and plumbing were updated, and the number of employees you have, sales volume of the business.
Deciding on a Deductible
The number of insurance claims you're anticipating will determine the type of deductible you need. If you think your chance of having a claim is low, you might want to consider what's called a per claim deductible. If you have a lot of claims, you'll probably want your deductible calculated on what's called an aggregate basis. Thr higher the deductible the lower the premium.
Liability Insurance
Business liability insurance protects against losses your employees or machinery may cause. Landlords and large entities that you are contracting with to do buiness usually require it and often want to be named as additional insured parties.
Business liability insurance covers:
- Premises and operations
- Leasing mishaps
- Contracts
- Products and operations
- Injury to customers
- Vehicle accidents
- Professional malpractice
Professional liability insurance - sometimes referred to as errors and omissions insurance - protects against professional misjudgments that cause damage to others. An example would be insurance to cover surgery where the doctor used the wrong procedure or otherwise made a mistake.
Liability insurance is usually purchased according to "limits of liability," the maximum amount the policy will pay on a single incident. Limits of liability are sometimes divided into bodily injury and property damage, and should cover the costs of defending yourself in court.
Typically, a liability policy won't protect you against claims from:
- Contract nonperformance
- Wrongful employee termination
- Sexual harassment
- Other employee-related lawsuits
You can sometimes purchase separate insurance called employment practices liability insurance (EPLI) to cover such claims.
Checking Out Insurance Companies
Ask the agent for background materials on the company. You may also want to review rating services reports published by such companies as A.M. Best, Standard & Poors, Moodys or other rating services.
