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How to get your insurance coverage just right

Choosing the right commercial insurance policies for my small business, and then paying the monthly premiums,  ranks right up there with root canal among my favourite things to do.

Despite this, I believe that having the right insurance in place is a hugely important aspect of risk management for any small business. Its customers, vendors and employees are all counting on you to get it right.

Under commercial insurance, I tend to look for coverage of assets such as property, machinery and equipment, as well as inventory. This seems like a bit of a no-brainer and a minimum requirement, but you would be surprised at how little time small business owners spend reviewing their policies before they renew.

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Within this type of property insurance coverage, I would be sure to include, as part of inventory value, goods in transit. Adding this will protect inventory that you own but is not in your facilities, such as incoming goods on a slow boat from China or finished goods on a FedEx truck to Corner Brook. It is way more economical to do this than to pay carriers (ocean transporters or courier companies) their going rates on insurance for each shipment.

Also under property insurance, you should add tools that may be used off your premises if you have service technicians on the road. Their tools and parts are not usually covered by the auto insurance that protects the company vehicle they may be using.

If you are a fancy restaurant or daycare centre, say, you can get landscaping, lighting, signage, fixtures and even specialty flooring covered by your property insurance plans. Give this some thought.

Another type of coverage you may not have considered is crime insurance. This can cover your business for employee theft, forgery, burglary, and electronic fraud. You'll have to make your own assessment of whether these are risks worth insuring in your type and size of business.

Next is an obvious one: general liability. This is the most common and typically most affordable type of insurance, and will cover injuries to employees, customers or suppliers while on your premises. It can also cover injuries or damage as a result of negligence on behalf of you or your employees, off your premises. Coverage of $2-million for this basket of risk management is pretty standard, and affordable, these days.

Last is my favourite and much overlooked coverage type: business interruption insurance. This covers your fixed expenses, payroll and profits if your business is shut down because of property damage or an event that makes continued operation impossible.

This is a policy that gives me great peace of mind. Having a flood would be bad enough, but having it affect my employees and potentially destroy my business when I had access to coverage would be something I would never get over. This coverage is well worth it, in my opinion.

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I encourage you to take some time and investigate what of this, or other, coverage your business needs to give you peace of mind.

Just as important, be sure to have fresh quotes for your plans every year or so to make sure that your broker or insurer is remaining cost-competitive.

Finally, be sure to use that annual requoting process to check whether your coverage need to be changed. Have you added or disposed of costly machinery that is not reflected in your property, plant and equipment valuations? Has the value of inventory changed significantly?

Fine-tuning your insurance coverage may not affect the number of widgits your company sells, but it is a very important responsibility for both risk management and cost control.

Special to The Globe and Mail

Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and sold seven businesses.

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