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Commercial Insurance Frequently Asked Questions

Do you know what’s covered in your commercial insurance policies?  More importantly, do you know what is NOT covered? Not all insurance is the same. Different companies have different exclusions. As an independent insurance agent, it’s our job to find the coverage each customer needs at a cost that fits the individual’s budget. The following questions raise important coverage issues. Take a minute to test your insurance knowledge by reviewing them. Then, if you have your own commercial insurance questions, give us a call.

We have answers.

Commercial Insurance FAQ’s

Q. Why do I need a commercial auto policy instead of a personal auto policy?
A.  If you are a business owner or self-employed professional and your car or truck is owned by the business or is leased by the business, you must have a commercial auto policy under New York law.  If you permit your employees to use the vehicle for business purposes, again you want a commercial policy to protect your business from the liability of potential lawsuits and claims based on their use of the vehicle.

If you are a typical small business, you have probably purchased a Business Owners Policy or BOP. Commercial auto coverage is NOT automatically part of a BOP and must be added at an additional cost.  If you have covered your business with a Commercial Multi-peril Policy (CMP) or Commercial Package Policy (CPP), this usually includes commercial auto or fleet coverage, depending on what the company has for vehicles and how the employees use the vehicles.

Q. Do I need Workers Compensation and Disability Benefits Insurance?
A. If you own a for-profit business in New York and have full time or part-time employees, you are required by law to purchase Workers Compensation to cover on the job accidents and injuries and also Disability Benefits to cover off the job illnesses and injuries.  Even non-profit institutions and organizations must carry these coverages if they pay employees.  Also by law, employers may not charge any portion of the cost of Workers Compensation to employees.  However, employees may be asked to contribute a small percentage of the Disability Benefits premium.

Costly fines and other penalties will be imposed by New York for failure to comply.

Q. Why do I need certificates of insurance from subcontractors?
A.  Any entity can be exposed to risk when using the services of outside independent contractors, subcontractors, service providers, vendors or any other organization that supplies them with services or materials.  Accidents and injuries happen and if they happen on your property or in your service, you have some liability.  Transferring the risk or liability to another entity through a combination of contracts and insurance is a basic means used for managing the risk.  An insurance certificate is merely a tool used as assurance that the types and limits of insurance required, such as Workers Compensation, Disability Benefits, and liability coverage, are in place and current.  By having the certificates in your file, you protect your company from additional charges for subcontractors when your company is audited by your insurance company.  However, it is also a good idea to require all contractors and subcontractors to provide a copy of their actual policy to check their coverages and limits to make sure they are sufficient for the actual risks.

Q. Why does my insurance company require an audit?
A. The concept behind an audit is to assure that you are paying the correct amount of premium for the insurance you have…. neither too much nor too little.  This in your best interest as well as the company’s because conditions and risks change over time.  You want to be protected for the risks you have today, not the ones you had several years ago. The insurance company will request certain documents from you, such as payroll records to check Workers Comp or tax records to look at sales.  If you have considerable inventory that changes over time, they may ask to see inventory records. They may ask for a visual inspection of your premises.   The end result will be that you will know that you are adequately protected and are paying an appropriate premium.

Q. Why do I need Business Income coverage?
A. Business Income coverage, also called Business Interruption coverage, provides income for the period when you are “out of business” due to a covered loss, such as a fire, storm damage or flood.  The coverage applies to the economic loss suffered during the time required to repair or replace your damaged property so you can begin operating again.  It may also be extended to apply to losses suffered after the completion of the repairs for a  specified number of days while you ramp up to your previous level of activity and sales.

Q. How does a coinsurance clause affect my policy?
A. Coinsurance clauses are typically found in many different insurance policies from commercial insurance to homeowners to federal flood insurance to health insurance.  But even though the clause or requirement is named “coinsurance”, it means different things depending on the type of policy.

For example, in health insurance, it typically refers to a form of cost sharing for covered expenses above the deductible. However, in the case of property coverage, coinsurance is a way to establish a “standard” for the company’s total exposure. And a way for insurers to establish some degree of rate and premium equity. The insurance contract is the means to set the direct damage coverage limits and how any loss will be settled (replacement cost or actual cash value).  Typically insurers want coinsurance requirements that cover 100% of the insurable value, as established by recent professional appraisal of buildings and contents.

This process can get very complex because different policies and companies have different definitions and methods of evaluation. However, your insurance agent should be able to review your policy and explain how coinsurance is handled in your case.

Count on Lupton & Luce for Sound Advice for Sound Decisions.