As a business owner, you must make some many important decisions but one of the most important decisions is about your insurance coverage. I shudder every time I speak to a business owner who says they do not have insurance because they do not need it! All I think is they are so lucky nothing has happened to them. Not having insurance can be devastating financially. Now you are probably thinking, “Sure I have coverage but I had a loss and it was not covered. What good is it?” You need to look at insurance as a protection in the event of a CATASTROPHIC loss. Paying for the customer’s $100 blouse or shirt is something that should be “self-insured.” Meaning, you pay for that yourself. Your business needs to absorb the small losses. It is part of doing business.
It is important that you choose a broker/agent that is familiar with the dry cleaning business. Your local Farmers agent or your cousin Vinnie may not know what coverages are important for you to have as a dry cleaner. The cheapest price does not usually mean the best coverage. Very often it means low or missing coverage.
It is the middle of the night and you get the phone call, your business is on fire. This will probably never happen to you. In the last 12 months, at the Henderson Insurance Agency, we have had 4 total losses. Everything gone. This is why you have insurance. An important part of your policy is your Business Personal Property coverage. This coverage not only covers your equipment and the installation cost. It also covers your rails, counters, computers and supplies. This coverage is usually a replacement cost coverage so when you establish a value; it should be based on replacement cost. In the event of a claim, if you do not replace the items, the insurance company will only give you actual cash value. If you are unsure of your valuation, ask your equipment vender to help you figure out a value. Preparing an equipment inventory is helpful and very useful if you have a loss.
Customer’s clothing or bailee coverage is necessary for your business. Agents that do not understand the dry cleaning industry often put a very low value on the amount of customers clothing you need. Look around your plant/drop store. You see full racks of clothes. What is the value of the clothes? Would $50,000 in customer clothing coverage be enough? Some policies will include customers’ clothing coverage in your Business Personal Property coverage. Some policies have NO coverage for the customers’ clothes. Many policies offer unlimited coverage. This is what you should be looking for. Reading an insurance policy is the most boring thing one can do. But the first few pages of your policy lists the coverage and it is IMPERATIVE you read these to know what you are getting. If you don’t see customer clothes/bailee coverage, you must ask where it is in the policy. You need to see that coverage listed yourself. You must realize that the customer clothing coverage is usually an actual cash value. Your customer will not be offered replacement cost. The items of clothing will be depreciated for the use of the clothes. That is why it is important when a claim occurs; you educate your customer on the importance of providing receipts to substantiate the claim.
Deductibles are always an issue. Almost every coverage has a deductible. Business personal property, customer’s clothes, money, signs, glass coverage all have deductibles. Try to live with the highest deductibles that you are comfortable with. Higher deductibles mean money in your pocket since the insurance companies will give additional credits for these deductibles. Business income/interruption coverage also has a deductible. This deductible is measured in terms of hours. Yes, hours. Before the coverage applies, you will have anywhere from 24 hour to 72 hour delay before the coverage applies.
I have done articles on mechanical breakdown coverage several times but I am not going to repeat that here. Just remember, if your equipment is broken down due to wear and tear or rust and corrosion, it is NOT COVERED!
If you have workers, you must also have Worker Compensation coverage. The worker compensation rates are rising and the companies are becoming very strict in their underwriting guidelines. A few companies will no longer write in the Los Angeles area. If you have a lapse in coverage, it is becoming more difficult to get coverage at all. Worker compensation policies are subject to audit. When the policy is written, you give an estimated payroll of what you expect your payroll to be for the next 12 months. If your payroll is higher, you will owe more money. If it is lower, you will get a credit back. The insurance companies are more often conducting a physical audit. This means a representative will come to your business and look over your payroll records. The company can elect to do this and you must let them. Please remember that worker compensation coverage is used for the injuries an employee might suffer on the job. If an employee accuses you of harassment or not providing breaks or not paying for overtime, this is not covered by Worker Compensation coverage. You need Employers Liability coverage for this.
Are you a corporation or partnership? Have you advised your agent of this? It is important that all your insurance policies use the correct legal entity as the named insured. Often businesses make these changes during the policy term and don’t think to advise the agent. On your Worker Compensation, this is particularly important. The company needs to know if you are a corporation and who the corporate officers are. If the corporate officers own stock, they can be excluded under the Worker Compensation coverage. If they do not own stock, they cannot be excluded. This creates many problems for you, the insured, when this is discovered at audit.
I hope you learned something through this article. Insurance can be very complicated, but I hope I shed some light on the dark spots.
