It’s Your Business
- Author: Terry Greenhut, Shop Operations Editor
- Subject Matter: Tools for the excellent manager
- Issue: Decision-making with insurance
The Management Series: 27th in a series
There are all kinds of insurances to be had depending upon what we want or need to protect. Some of it we are told we must have because it’s the law and some we want to because we sleep better at night with the feeling that we are covered if anything should happen. Unemployment insurance and worker’s comp are examples of insurance that’s mandatory in most of the United States and for most jobs, but not all, and the lines that are drawn are not always easy to see or understand. Sometimes they depend on the number of employees and even, to an extent, the types of work being performed. That’s why it’s important to consult with an insurance expert in your own state.
Weigh the variables and make decisions for your circumstances
Automobile liability insurance is another one that’s mandatory just about everywhere but there must still be an awful lot of people driving around without it because when you buy your policy you will always be offered, for a fee, insurance that protects you from the uninsured motorist. I feel you should always purchase it because in a normal accident situation the insurance companies do battle with each other, but if the other party has no insurance or tangible assets the chances of you getting paid are somewhere between slim and none. Keep in mind, though, that liability insurance protects you for what you do to someone else or their property; it doesn’t protect from what they do to you or yours.
So, if your insurance company can’t collect for the damage to your vehicle or if someone runs into it then flees and is never identified, unless you have collision insurance you will probably wind up paying for the damages yourself. The same goes for comprehensive insurance that covers things like vandalism and broken windshields. Don’t forget fire and theft insurance either. Cars are still stolen at an alarming rate. I’ve had three stolen from me over the years. In true fact, it was only two, but one of them was actually stolen twice, so I guess that counts as three. They were all Corvettes, but I was too young and dumb at the time to realize that they were the wrong cars to own living in New York City.
Business insurance of all types is important. Some of it, like product liability, can be critical if something you worked on or produced actually injures someone. Sure the injured party will sue the manufacturer of the brake pads that didn’t stop the car in time, but you also for installing them. Their lawyers will be looking for someone to pay, and they don’t really care whom.
If you own the building your business operates out of or if you’re the tenant who, in your lease, became responsible for the property then you will want to be sure to have enough fire and liability insurance to cover any eventuality. You may also want business interruption coverage in case you can’t operate for a while due to a fire or other natural disaster.
If you are one of the owners of the business and have a partner, you may want to consider taking out life insurance on each other. That way, if one of you should pass away it would provide enough money for the other to buy out the survivors should they not want to remain in the business. A contract needs to be drawn up between the partners when the insurance is purchased that spells out exactly what happens in the event of the other’s death. The business would also need to be re-evaluated from time to time to see if the coverage needs to be increased as the business grows.
If you are the sole provider of your family’s income, you should have at least enough life insurance to allow the family to meet any goals you’ve set with them like putting the kids through college or paying off the mortgage on the house. If you have a spouse who either works outside the home and brings income to the household, or doesn’t but performs the domestic tasks for which you would have to hire others to perform, then you need life insurance on that person as well.
If you are young and single and have never had many health issues, then health insurance may not be a concern for you, but if you have a family and/or if you are over 40 years of age, it should be. This, as you know, is a high-stress business, and if you don’t take care of yourself quite the way you should, you can be susceptible to heart disease or diabetes at a relatively early age. On top of that, cancer doesn’t care how old you are when it decides to strike. If you are not well covered, a catastrophic illness can wipe out your entire fortune.
When we reach age 65, Medicare kicks in and some people talk about it being a gift from the government, but it isn’t. You’ve been paying into the fund during your whole working life and it’s not the end-all-to-beat-all. It doesn’t come close to covering everything. You get part “A,” which covers part of major surgeries and such, but you have to buy part “B,” which applies more to doctor’s visits and the like, paying the premium for it out of your Social Security check each month, and then because it only pays for a percentage of the charges, so you will also need to purchase supplemental insurance to cover the difference, and there are lots of confusing plans from which to choose.
Some have no or very low premiums to pay but don’t cover much, so you would still be out of pocket for deductibles and co-pays. Others charge a fairly hefty premium but give you the peace of mind of knowing that there will hardly ever be an out-of-pocket expense, and you can usually use any doctor who accepts Medicare, but always ask first. Then we come to part “D,” the prescription drug plan. If you don’t buy that coverage you will be out of pocket for all of your drug purchases. If you do buy it, you will pay a monthly fee and get some of your drugs for no co-pay, others for a minimal amount, and others in the higher tiers for an exorbitant amount no matter what plan you have. Then to add insult to injury, if you take several pricey prescriptions at some point before the end of the calendar year you can temporarily run out of coverage and again be completely out of pocket until your catastrophic coverage kicks in. Whoever dreamed up this idea of stopping and restarting coverage this way must have been very drunk at the time.
Fortunately there are services that can help you figure out which supplemental plan will be the best for your needs. These consultants don’t charge for their services. They will meet with you in person and explain all the different plans available so you can make an educated choice. They don’t push or try to sell you on one plan over another. They simply advise based on your requirements. After they leave you decide what coverage you want to purchase and deal directly with the health insurance company of your choice. One thing to remember about all of these supplemental plans is that they are individual. You can’t buy a family plan for you and your spouse. That can be good or bad. It’s good if one spouse hasn’t had very many health issues and wants a lower premium plan that doesn’t include all the bells and whistles. It’s bad because you can’t get a discount for packaging the husband and wife’s policies together because there is no packaging. Whatever plan you buy, remember that you are locked into it for a while. You can only switch once a year during the open enrollment period; so choose carefully.
Dental & vision
Some of the supplemental plans might offer dental and vision care that you can pay an extra premium for, but they still might not cover many of the expenditures of extensive dental work that we tend to need as we get older, especially if we have disregarded our dentist’s warnings about taking care of our gum problems. There are, however, some individual discount plans you can buy that are not insurance, but if you use the dentists in their group, your bill can be discounted by as much as 50%. I’m going through a scenario like that right now. I needed almost $9,000 worth of work that I was able to get for $4,400 with a very inexpensive plan I bought through Cigna Health Care Services. The interesting thing is that when we had dental insurance through my wife’s job, it only paid 50% of the bill anyway so we really haven’t lost anything by no longer having it.
Protection: insurance, exit plan
Something you don’t want to do is become insurance poor. You don’t want to spend so much protecting your assets that you diminish them by paying out huge premiums every month. The decision you need to make is, “How much are you willing to gamble?” In other words, “How much coverage do you need to buy and with what amount of deductible?” Of course the lower the policy limits and the higher the deductible the lower the premiums will be. Just be sure when it comes to something like your home that you buy the right coverage to get you through some of the more crazy natural disasters we have witnessed of late. In Florida, for example, we have had two serious hurricanes come through parts of the state that haven’t seen a big one in almost 100 years. So if you live in a place like “Hurricane or Tornado Alley” you have got to know that sooner or later you are going to get one, so it would behoove you to protect against it not only with insurance but with precautionary measures like hurricane shutters and impact garage doors, but that’s not all. An exit plan would also be highly advisable in the eventuality that you are told to evacuate. You also need to understand that no matter how big or brave you are and no matter how much insurance you have, you can’t stop that 50-foot oak tree that could flatten your house or shop from the 150-mile-per-hour winds of a major hurricane; so be smart, pack up your family and essential things real quick and get out of there. There’s no shame to running in cases like that. The shame would be that you didn’t and got yourself killed. Possessions are replaceable; you aren’t.
No matter what you do to protect your home or your family, there is always the chance that something or someone will get past all of your alarms and precautions. That’s what insurance is really for: to supplement all of your protections and be your partner in cutting your losses as much as possible. You pay for the privilege of having peace of mind. The big question is, “How much are you willing to pay for it?”