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Risk: Weighing Insurance Factors

Anne Cobb |

CHICAGO — In insurance terms, risk is an exposure that exhibits the possibility of financial loss. That can mean loss of property, but it can also mean bodily injury.Insurance exists to pay for fortuitous losses, ones that cannot be predicted. For example, if your ceiling is damaged and nothing is done about it for a long period of time, you may notice it getting worse over time, and can predict that eventually it may collapse. That is not a fortuitous loss, but a case of wear and tear. That will be a financial loss for you and not likely to be covered by insurance.However, if your roof blows off during a tornado, that is a fortuitous loss and insurance coverage will apply. On the bodily injury front, someone may slip in your store, which would be fortuitous. But if you let the tiles in your store become worn, missing or broken, you can almost predict that someone is going to be injured in a fall. In this case, insurance would pay because it is covering a third party who may not have been at fault. Your carrier will likely insist that the tiles be repaired or may take the more drastic measure of not renewing your policy.AVOID THE RISKManaging risk is an everyday, ongoing process that should begin before you purchase a location. Everything should be checked to make sure it is working and in safe order with no fire hazards, no leaking water, and no rough edges on equipment. You must have safe walking space for your customers, inside and out.If several of these things are not in order, it may not be worth taking the risk, unless you or the seller plan on making major improvements before opening the store. Even when insurance is going to cover a loss, having a large property claim or being sued by a customer is stressful. With a not-so-nice Laundromat, it might be best to avoid the risk and look for a better place.RISK TRANSFEROnce you find a store you want to invest in, contact your insurance agent. Explain the opportunity you have for this business and ask questions about what types of insurance you need and how to reduce the likelihood of loss. Buying insurance is risk transfer. For a premium, you will transfer your risk to an insurance carrier. The carrier may want to do an inspection of the property at some point, either before taking the risk or immediately after binding the risk. If the carrier finds things that are unacceptable, you may be required to make improvements and provide evidence of those changes.TRANSFERRING RISK TO YOUIn many cases, a landlord may want to be named as an additional insured on your policy. In this case, the landlord is transferring his risk to you. The landlord requires this so that if anything happens to a third party at your Laundromat, either inside or out, the landlord will be covered on the liability section of your insurance policy. So whatever defense provided to you as the business owner will also be provided to the landlord if that landlord is sued along with you.TRANSFER YOUR RISKThere are cases where you will want to transfer your risk to someone else. For instance, when having work done on the premises, always get a certificate of insurance from any workmen or repairmen and have your business named as an additional insured on their insurance policy. That way, if anything goes wrong in the repair process or if someone is injured, you will be covered for any damages done by the repairman. Make sure that the certificate shows proof of liability and workers’ compensation insurance.KEEP THE RISKAnother form of managing risk is to keep the risk. In other words, you don’t avoid it and you don’t transfer it. You must manage it and make sure you do a good job of that. One such exposure could be employee dishonesty. It may cost a few hundred dollars to buy a policy for it, but you may believe that you do a good job of choosing your employees by doing background checks and getting references. So it may not be worth it to you to pay for employee dishonestly. But never make the mistake of keeping a risk that could financially ruin you, such as not buying property and liability insurance or workers’ compensation insurance. One large loss in any of these areas can put you out of business or worse. If you keep the risk, it should be small enough for you to handle on your own.GIVE IT SOME THOUGHTManaging risk, whether you transfer it, keep it or try to avoid it, is something you should have on the top of your list each day as a Laundromat owner. You don’t need to spend hours doing it every day, but be observant and aware of the things that could happen. It will save you time and money in the long run.

About the author

Anne Cobb

Fabricare Insurance Specialist

Anne Cobb is a fabricare insurance specialist with NIE Insurance. If you have any questions or comments about this article, contact Cobb at 800-325-9522 or cobb@nie.biz.

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