Business Insurance FAQ


	Business Insurance FAQ Business FAQ What are the causes of business failure? What should I do before leasing anything? What is the difference between an employee and an independent contractor? What do you need for a General Liability Audit? Worker's Compensation Bureau FAQ Employee's guide to the Massachusetts Worker's Compensation System (.pdf download from www.mass.gov) Employer's guide to the Massachusetts Worker's Compensation System (.pdf download from www.mass.gov) What is Experience Rating? Why Have Experience Rating? What are the causes of business failure? Plunging in without first testing ideas Underpricing goods and services Understanding time required to build a market/staff Underestimating or overestimating the competition Too little operating capital Carelessness with expense capital Go into business with little experience and no willingness to learn Borrowing money without planning exactly how and when you'll pay the money back Trying to do too much Not allowing for the unexpected, but inevitable expenses Buying too much on credit / Not having enough credit Extending credit too freely Expanding too rapidly Failure to maintain complete records Carrying personal extravagances into the business Carrying too many relatives on the payroll Mistaking freedom of being in business for yourself for the liberty to work when you please What should I do before leasing anything? Businesses face many types of risks. One often over looked exposure to a loss which many businesses face is liability because of damage to property you rent or occupy. All Commercial General Liability Policies exclude coverage for property damage to property owned, rented, or occupied by the insured (you). What does this mean to you? It means, if you rent an entire building you will not have coverage if the building is damaged or destroyed by you or your employees negligent actions. Example: You rent a building or an office in a building and one of your computers, machines, or appliances shorts and causes a fire and destroys the building. Your landlord or their insurance company sues you for the damage $150,000 to the building plus $36,000 for loss of rental income. Total damages payable $186,000 so what do you do? Many policies do provide limited coverage for fire (only) legal liability usually $50,000 so where do you get the additional $136,000? We recommend consulting an attorney to review your lease and your insurance agency should also review your lease. Your attorney should add A wavier of subrogation (to prevent the landlord from matching claims and exculpation agreements. A little extra time in the lease negotiation process can save you from financial ruin. This is the least expensive in the long run. Buy All Risks Legal Liability Coverage. Types of problems created: For Landlord Loss of Rents Replace the building or structure For The Tenant Financial loss due to non-abatement of rent Additional expenses to rent and relocate to other quarters Potential loss of favorable lease (on location) Potential loss of bonus/advance rent Loss of income Potential loss due to increased rents Financial loss from inadequate legal liability What is the difference between an employee and an independent contractor? Massachusetts law categorizes all workers as an employee, unless, the employer shows: There is a contract for the services to be performed The individual has been and will remain free from control and direction in performing the contractual services The contractual service is performed outside either (1) The usual course of the business for which the service is performed or (2) All places of business of the enterprise; and The individual customarily engages independently in the type of work provided under the contract Other factors affecting a worker's proper status under the law include the worker's skill level, whether any equipment needed to perform the work is provided by the employer or the worker, and whether the employer bears the costs of operation. The IRS has it's own criteria for determining employees and independent contractors: Employer requires worker to undergo training Worker must provide services personally Employer has right to discharge worker at any time The worker has the right to quit at any time The employee/worker relationship is continuous Employer hires and pays workers assistants Employer establishes set hours of work Employer requires full time services of worker Employer specifies schedule and sequence of work Worker must provide regular reports about work Employer furnishes required tools and equipment Employer pays travel and other incidental expenses Worker is paid by hour, week, or month, not project Worker does not have significant investment in tools Worker does not risk economic loss for other salaries Worker regularly offers his services to the public Worker works for more than one employer at a time Worker's services are integrated into employer's business operations Worker must comply with another worker's instructions about how, when, and where to work Work is done at the employer's premises or at their designated locations What do you need for a General Liability Audit? General liability audits are done annualy for contractors, manufactureres, and most other businesses. The audit is either: Voluntary (an audit form is maile to you for you to complete) On Site (an insurance auditor visits your business) Premises & Operations: Many business premiums are based on payroll, revenue, or sales. Rates are computed based on each $100 of payroll or $1,000 of sales. Payroll includes: Regular Earnings Tips Bonuses & Commissions, Piece Work Allowance for tools Payroll for each owner, partner, or cooperate active officer is an amount of $28,600 Payroll does not include: Overtime (Excluding the time and a half over a straight time) Clerical office employees Salesmen, collectors, and messengers (except when classification specifically includes these classes) Drivers, if their principle duties are to work in connection with automobile, truck, etc. Products Liability: (or completed operations coverage for contractors) premiums are based on rates for $1000 of your receipts, sales or revenue. Receipts are gross amounts of money charged by you for: Good or products you sold, or services performed Operations performed What is Experience Rating? Simply stated, experience rating is a procedure utilizing past insurance experience of the individual policyholder to forecast or predict future losses. This statement is deceptively simple because experience rating does not stand alone, but is part of the overall worker's compensation insurance pricing system. The determination of the actual dollars paid for workers' compensation insurance protection is analogous to the peeling of an onion because the pricing programs go through a series of levels to determine the core, in this case the final, or net, premium paid by the individual policyholder. Experience rating is merely one of the layers, or steps, through which one must pass. Why Have Experience Rating? If the rates in the workers' compensation manual are designed to predict future losses, why have experienced rating, and how does experience rating benefit the individual policyholder? Implicit in any form of experience rating is the prospect of both debits and credits. If experience rating is not a two-way street, then it merely becomes a surcharge or discount program. Since experience rating offers the prospect of a premium reduction, it provides incentive for employees to develop safety programs and accident prevention procedures. Thus, experience rating benefits employers by promoting occupational safety. Also, because experience rating represents a refinement in the premium determination process, it benefits employers by producing a net premium cost that is the best indicator of the employer's own potential for incurring claims. This means that the insurance premium will be appropriate for the protection being provided and is neither more nor less than is appropriate using sound insurance principles and all available data.