CHICAGO — Adequate insurance coverage is a must for every small business, but just how much do you know about it? Do you understand the difference between property and liability coverage? Know where your vended laundry is most at risk for a claim? Have you come to accept some things as fact when they may actually be myths?
To help you navigate the maze of risks, American Coin-Op invited representatives from some of the industry’s major insurance providers to answer basic insurance questions that an average self-service laundry owner might have.
Q: What are the basic components of a small-business insurance policy?
Ann Hawkins, vice president, Underwriting & Sales, NIE: The basic components of a small business insurance policy are commercial property (building and/or contents), commercial general liability, loss of business income and equipment breakdown. Separate policies may be purchased for commercial auto and workers’ compensation.
Larry Larsen, agent for Crusader Insurance Co.: There are two parts to it. One is liability insurance, which you carry for two reasons: One, you have a moral responsibility to the community in case an accident occurs on your premises or in your business that you don’t have the financial resources to pay for. Second, you want to protect the financial assets that you do have. Generally, on a policy for a Laundromat, that’s about 50% of what you pay.
The second major part is property damage. In Laundromats, the primary thing we’re worried about is fire. You want to insure against the potential for catastrophic loss.
Jodie Millino, vice president, Commercial Lines-Producer, HUB International Insurance Services: Property, covering equipment and tenant improvement and betterments; in most contracts, the tenant is responsible for the entire inside of the laundry. General liability coverage to protect the store owner from being sued if a customer is injured. Business income coverage for loss of income due to a covered cause of loss; normally, it is written on 12 months-actual loss sustained basis. Glass and money coverage are also normally included in the small-business policy.
Larry Trapani, president, Brooks-Waterburn Corp.: A Business Owner’s Policy (BOP) combines protection from most major property and liability risks in one package. These policies are created for small businesses that generally face the same kind and degree of risk.
- Property Insurance, for building and contents owned by the company.
- Business Interruption Insurance, which covers the loss of reported income resulting from a fire or other covered causes of loss that disrupts the operation of the business.
- Liability Insurance, which covers your company’s legal responsibility for the harm it may cause to others. This harm is a result of things that you and your employees do, or fail to do, in your business operations that may cause bodily injury or property damage due to defective products, faulty installations, and trip/falls that may occur due to slippery floors or uneven sidewalks.
Adam Weber, president, Irving Weber Associates (IWA): 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 vended laundry owner want to explore?
Larsen: The next one that you want to consider is theft coverage. You must have major property and liability coverage. You need to assist your insurers by being smart. Protect your changers with proper guards and locks, security, alarms, and don’t be so foolish to leave a duplicate set of keys in the back room in your locked desk drawer.
Millino: What was discussed in the first question are typical of a small-business insurance policy but the average vended laundry owner may want to explore higher liability limits and review business personal property limits to make sure it is enough coverage to replace the store.
Trapani: Laundromat owners have some unique coverage needs. Here are the main ones to consider:
- Tenant Improvements — When you bought the Laundromat, did you buy an existing one or build one from scratch? If you are a tenant in the building and do renovations to the space or a “build-out,” you are responsible for those improvements you make. Imagine if you do a $100,000 build-out and have a fire that destroys your Laundromat. If you don’t have the Tenant Improvements coverage, it would be a major gap in your protection.
- Bailee Coverage, aka Customer Property — You do a fair amount of wash-and-fold service. If something happens to those clothes, you are responsible for them. Most Laundromats we protect have a minimum of $10,000 Bailee Coverage. There are many types of coverage forms that insurance companies use, so it is important to understand what is covered and what is not.
- Hired & Non-Owned Auto Coverage — Do you do deliveries or make deposits at the bank? If you do, is it with your personal vehicle or perhaps one of your employees’ vehicles? What if there is an accident and the business gets sued? Hired & Non-Owned coverage will protect your business in the event of this type of claim. The approximate cost is only about $100 annually. [My firm] includes this coverage on all Laundromat policies.
- Money & Securities — Most Laundromats deal in cash. Make sure your policy has sufficient “Money & Security” coverage for both inside the premises and outside.
Weber: 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 dropped 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 caused 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: [The types of coverage I described in response to the first question] are typical of small-business insurance policies but the average vended laundry owner might also want to purchase bailee (coverage) to cover the clothing since so many laundries now do wash/dry/fold, commercial laundry and drop-off drycleaning. They may also want to explore utility services coverage for loss of power to their machines due to a covered cause of loss that happens away from the premises, such as a lightning strike down the block.
Coming Monday: Part 2, including insurance myths, balancing adequate coverage with affordability, and identifying the greatest areas of risk around your laundry