CHICAGO — Insurance coverage is essential for every small business, but just how much do you know about it? Do you understand the difference between property and liability coverage? The relationship between your deductible and your premium? Where your coin laundry is most at risk of a claim?
American Coin-Op invited representatives from the industry’s major insurance providers to answer some basic insurance questions that the average self-service laundry owner might have.
Q: How does business insurance work? What are the basic components of a small-business insurance policy?
Ann Hawkins, underwriter/vice president, NIE: Business insurance is composed of basically two important parts: property and liability. Property covers items for use in the insured’s business, such as building, personal property, loss of income, equipment breakdown, money, and various other items the insured may want covered.
Liability covers bodily injury or property damage to a third party such as your customer or business invitee. It does not cover employees or owners of the business. Workers’ compensation is needed to cover injuries to owners and employees.
Jodie Millino, account executive, Wells Fargo Insurance Services: Business insurance for the coin laundry industry works in basic theory the same way any business would purchase commercial insurance, the main components being property coverage and liability protection (these are the two basic required coverages for a business insurance policy).
Under the property coverage, you can then purchase building and personal property coverage, along with business income protection. Under the liability component, you then have to determine adequate limits by your net worth and any required lease agreements.
Other considerations under the liability protection are personal injury (libel, slander, false arrest, defamation of character), and in some cases employment practices liability, fire legal liability, and non-owned auto coverage. These coverages are in addition to what is commonly referred to as general liability protection (premises coverage for injury and damages).
Larry Trapani, president, Brooks Waterburn Corp.: Business insurance is designed to protect your business, customers and employees from all types of calamities. While many people consider insurance a “necessary evil,” having the correct insurance in place can mean the difference between reopening after the fire and losing your investment completely.
The basic components of a small-business insurance policy are property, liability and workers’ compensation. The property covers your equipment such as washer/dryers, hot water heaters, vending machines, tables, chairs, etc.
Liability covers your business in case you are sued. For example, a customer can slip on a wet floor and become injured. Most landlords require at least $1 million in liability coverage.
Workers’ compensation covers your employees if they are injured on the job. Most states require you carry workers’ compensation coverage if you have employees. The premium is based on your payroll. The higher the annual payroll, the higher the premium.
Adam Weber, president, Irving Weber Associates (IWA): If you’ve heard it once, you’ve heard it a thousand times: if you are starting a business, you’re going to need business insurance in order to protect you, your business and your assets in the event there is a claim. To simplify the business owner’s policy, there are two major parts.
First, there is property coverage, which covers costs of damage to the business’ personal property (contents) or the building if you own or are required to insure it. Secondly, there is liability coverage, which covers costs to the owner in the event that someone’s person and property is damaged due to the business’ negligence (including defense costs).
Q: What types of coverage are typical of a small-business insurance policy, and what special coverages might the average coin laundry owner want to explore?
Trapani: Within each basic coverage, there are many sub-coverages you should consider. I’ll address them one at a time. First, property coverage:
Make sure your policy provides “Replacement Cost Coverage” rather than “Actual Cash Value” (ACV). In the event of a loss, a “Replacement Cost” policy will provide what it will cost to replace the 10-year-old machine new. If you have an ACV policy, you will get only the depreciated amount for the 10-year-old machine.
“Business Income & Extra Expense” covers your lost profit and continuing expenses while the process of rebuilding is ongoing. For example, if you suffer a fire and are out of business for six months while they rebuild, you may have expenses such as loans payable, rent, and employee salary that you have to pay whether you are open or not. Most “Business Owner Policies” provide “Business Income & Extra Expense” coverage for one year.
“Cost of Buildout”: If you build a Laundromat from scratch, besides equipment, you will also have a costly buildout of the space you lease. This includes plumbing, heating, floors, and walls — anything that will stay in the building if you leave. A buildout can cost anywhere between $50,000 and $100,000. In most leases, if you did the buildout yourself, you are responsible in the event of a loss.
Next is liability coverage. Liability covers your business in the event you are sued. The most common types of suits are slip-and-falls. Also, I see children hurting themselves while running around the store. Most landlords require a minimum of $1 million liability coverage. “Additional Liability Limits” can be purchased, usually on a separate policy called an “Umbrella Policy.”
If you do deliveries via automobile, “Hired & Non-Owned Auto” coverage is a must. It will cover the business if sued for an automobile accident. Often, you use your own vehicle for deliveries. It has insurance, but the business is not protected. This coverage protects the business.
Finally, workers’ compensation:
This covers your employees if they are injured on the job. It pays the medical bills and some lost wages (lost-wages payments vary by state). The premium is based on payroll. The higher the payroll, the higher the premium.
Be aware, the IRS and many states are cracking down on “off the books employees.” They want their taxes and are going after traditional cash businesses such as restaurants and Laundromats.
Weber: There are many components to a small-business insurance policy. Some of the more common coverages to review in your business owners’ policy are “Business Personal Property,” “Business Income,” “Extra Expense,” “Employee Dishonesty,” “Equipment Breakdown,” “Glass” and “Outdoor Signs.” And for the coin laundry, of course, “Water Backup” and possibly “Bailee” (or customers’ goods) coverage!
Business Personal Property or BPP covers the furniture, machinery, equipment, stock and all personal property owned and used in the business, as well as the improvements and betterments that you may have made to the premises (such as drop ceilings, lighting, flooring, etc.)
Business Income is coverage for loss of income when a business needs to close due to disaster.
Extra Expense is coverage for the additional costs you incur to continue running your business.
Employee Dishonesty coverage protects the business from financial loss due to fraudulent activities of employees. It can also be employee theft of money or property.
Equipment Breakdown coverage protects against loss due to mechanical breakdown of nearly all equipment in the business. It applies to cost to repair or replace the equipment or property damage cause by equipment breakdown.
Water Backup coverage addresses water that backs up through sewers and/or drains. This is vital coverage for the laundry industry. Most business policies do not cover sewer and drain backups, so it’s important that coin laundry owners check to be sure this is included in their policies.
Hawkins: A typical small-business insurance policy will consist of the coverage I already listed. These are typical for a coin laundry owner as well but an owner may also want to consider adding bailee coverage if he/she is doing drop-off dry cleaning or wash/dry/fold service. Bailee covers the customers’ clothing while it is in the care, custody and control of the insured. It does not cover the clothing that the customer is washing on a self-serve basis.
Check back Tuesday for Part 2!