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What if the clothes I manufacture are damaged in shipment. Does the shipping company reimburse me or do I put in a claim to my insurance company?

Shipping companies often carry insurance to cover their losses. However, the shipping company's insurance may be too low or you may have difficulty collecting on a claim after signing for the shipment. Therefore, "property in transit" insurance is available to cover your property being transported by truck, rail, ship, or other means of shipment. Also, the firm you hire to transport goods and the contract you sign with them may affect your need for coverage. Make sure you check with your insurance agent.

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I work out of my home. Will my homeowners insurance cover my business?

Yes, but on a very limited basis. Loss of business property is usually reimbursed up to $2,500 in the house and up to $250 for business property damaged or lost away from the premises. Even if your business is a sideline such as a craft studio, these limits may be too low to cover all the equipment and materials you have accumulated. It's also important to know that no business liability coverage is included in a standard homeowners policy. Your insurance agent can help you ascertain what, if any, additional coverage you need. This additional coverage may be added to your homeowners policy or found in a separate commercial policy.

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What is coinsurance all about?

Most business policies include a "coinsurance" clause stipulating what percentage of the total value of your property must be insured in order to be fully reimbursed for a loss, even a partial one. (Most losses are partial.) If you insure for less than that amount, your insurance company may impose a "coinsurance penalty" on your claim.

Here's how coinsurance works:

Let's say you have a building insured that you believe would cost $100,000 to replace and a coinsurance penalty in your policy of 80 percent. You insure the building for $80,000, thinking you have fulfilled the coinsurance clause. A fire loss causes $60,000 worth of damage, so you submit a claim. Your insurance company subsequently determines that the replacement cost of the building is actually $150,000. To determine how much to pay on the claim, the insurer divides the amount of insurance you purchased ($80,000) by the amount you should have purchased (80% of $150,000 or $120,000). The result (two-thirds, or $40,000) is the amount of your claim the insurer will pay.

Thus, even for a partial loss within the monetary limits of your policy, you will receive only two-thirds of the amount claimed. If the building had been insured for at least $120,000, the insurer would have reimbursed you for the full amount of the loss.

You should check with your agent to make sure you have adequate coverage. Adding an endorsement to the policy that automatically increases policy limits to keep pace with inflation is a good idea.

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As a retailer, do I need to worry about product liability?

As long as you do not alter the products you receive from manufacturers for resale, you have only a secondary liability. The product manufacturer is the first liable party. General liability insurance usually covers this secondary liability, but you should check with your agent to be sure your business is adequately covered. Recognize, too, that your liability policy will pay
defense costs, whether or not a judgment is rendered against you.

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Now that my business is established, I think it is time to offer my employees some benefits. What do I need to know?

Employee benefits generally include health insurance (sometimes including dental and vision benefits), term life insurance, and possibly a retirement program. Group disability insurance is also available, although employers and employees opt for this benefit less frequently.

Employers can provide coverage for their employees alone or for the employees and their families. Cost is usually the determining factor. With the high cost of health insurance in the United States today, employers are more likely to ask employees to pay some or all of the costs of health insurance for their families and sometimes for the employees themselves.

Depending on the size of the group to be insured, the business may serve as the policyholder for the group's insurance. However, for many small businesses, the insurer will pool them together in a multiple-employer trust. The trust itself, rather than any single employer, is the policyholder. This enables smaller businesses to benefit from the lower premiums and other services enjoyed by large groups.

Small businesses can also sometimes obtain employee benefit insurance through their trade or professional association. Your best bet as a small business operator is to find a way to join a larger pool seeking benefits. Check with your agent on the options available to you.

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