Basic, Necessary, Affordable Insurance

Published on March 1, 2013

1_insurance *Protecting your pond business from unexpected loss*

Can any garden pond professional withstand the financial hit of a fire that results in a two- month shutdown of operations? What about surviving after someone is injured after slipping on a wet floor? Can the business survive an employee who embezzles sizable amounts from the business?

Natural disasters can drastically affect the business where it hurts -– its pocketbook -– as well as teach every business owner an invaluable lesson. Only months after monster storm Sandy devastated much of the Mid-Atlantic coast, the courts are beginning to fill with cases about whether damages resulted from the storm’s winds or rising waters -– damage covered by few insurance policies.

Obviously, selecting the right type of insurance for the pond business is only one factor every retailer, distributor, builder, manufacturer, and installer must consider. Finding an insurance company willing to insure the business almost renders the question of cost irrelevant. How then can any pond business owner or manager hope to find an insurance company, select the right types of insurance needed for his or her unique operation, and most importantly, afford those steadily increasing insurance expenses?

**BASIC INSURANCE** The basic business insurance package, according to many experts, consists of four fundamental types of insurance coverage: workers’ compensation, general liability, auto, and property/casualty -– plus an added layer of protection over these, called an umbrella policy.

**WORKERS’ COMPENSATION** While nothing about insurance is easy, of the four types of insurance coverage, workers’ compensation comes closest to being a “no-brainer.” After all, laws in all 50 states require employers to maintain workers’ comp. insurance. What’s more, in most instances, the rates are established by the state. To reduce the cost of this necessary insurance, do not accept the first price offered. Because no one wants to be classed as an explosives manufacturer if the business really involves construction, ensuring the pond business is categorized properly means it will be charged the appropriate rate. Another way to reduce the costs of workers’ comp is to take advantage of rate variances offered in many states. After a certain premium level, usually $5,000, employers can be rated based on history of claims. Naturally, the fewer claims, the lower the premium.

**GENERAL LIABILITY** The most confusing and misunderstood type of insurance, provides coverage for the garden pond professional when negligent acts and/or omissions result in bodily injury and/or property damages on the premises of the business. It also provides coverage when someone is injured as a result of using the product manufactured or distributed by the business.

The best strategy with general liability is to determine how much coverage is actually needed. The old rule was that general liability insurance only equal to the business’s net worth should be purchased. Unfortunately, that does not work anymore because people now sue based on the amount of the policy – and the operator’s net worth. There are two extremes that an independent pond business owner or manager might want to consider. The first, the so-called “empty pockets” approach, is to buy little or no insurance so as not to become a target of lawsuits. The other approach is to buy $2 million to $3 million of liability insurance – generally, the most needed.

**AUTO** Like workers’ compensation, auto insurance is fairly straightforward. Even saving money is routine: simply increase the deductible. Of course, cost cutting should not result in lower policy limits. Many states set minimum liability coverage, and those payouts may be well below what a pond business actually requires. If the pond business does not have enough coverage, the courts can take everything. Many experts suggest carrying a minimum of $1 million in liability coverage.

**PROPERTY/CASUALTY** The majority of property insurance is written on an “all risks” basis as opposed to a “named peril” basis. The latter offers coverage for specific perils spelled out in the policy. If a loss occurs from a peril not named, then it is not covered. For starters, make sure the pond operation is covered by an “all risks” policy. Then take the extra step and carefully review the policy’s exclusions. All policies cover loss by fire. What about the losses from casualties such as hailstorms and explosions? Many businesses purchase coverage for all of these risks.

Whenever possible, “replacement cost” insurance should be purchased. This will replace the damaged property at today’s prices, regardless of the cost when the equipment or property was purchased. It is protection against inflation.

**SOMETHING EXTRA** In addition to these four basic types of insurance, many insurance professionals recommend an additional layer of protection, called an “umbrella policy.” This protects the operation from amounts in excess of its existing coverage or for liabilities not covered by other policies.

**GOING THE EXTRA MILE: BUSINESS INTERRUPTIONS** When a hurricane or earthquake puts your pond business out of commission for days — or months — property insurance covers the damage. However, while property insurance pays for the cost of repairs or rebuilding, who pays for the income lost while the operation is unable to function?

For that, business interruption coverage provides enough to meet overhead and other expenses during the time the operation is out of commission. Generally, premiums for business interruption insurance are based on the operation’s annual income.

Even better, a good “package policy,” bundled coverage offered as a package by many insurance companies to those in specific fields or industries, usually covers business interruption. Also included in many bundled insurance packages is protection for losses such as the raw materials, equipment or supplies stockpiled for future work. This usually falls under the heading of theft and loss protection.

Premises and operations coverage — part of some, but not all, business liability policies — covers a pond retailer, distributor or manufacturer for bodily injury or property damage liability to members of the public while they are on the business’s premises.

**REDUCING RISK AND PREMIUMS** All insurance premiums are based on the risks involved. Insurance companies evaluate the situation to determine the risk of potential loss that they will have to assume and base their rates on the results. Therefore, any steps that can be taken to reduce potential risks not only help safeguard the garden pond operation but may also make the business eligible for lower insurance rates.

In fact, every pond retailer, distributor, builder, installer, and manufacturer, large or small, should have a plan in place to manage the risks inherent to operating the business.

That means evaluating the pond operation’s exposure to risk. That, in turn, may mean looking at the property, equipment, products/services, and employee-related exposure to risk in the business. Then, and only then, is one ready to purchase insurance that will provide the funds needed to help restore the pond operation in the event of a loss. Which leaves the question: what insurance is needed?

**CASUALTY LOSSES** When insurance doesn’t fully cover the losses of a pond business, Uncle Sam, in the form of our tax laws, often steps in to ease the burden. Losses arising from fire, storm, shipwreck, or other casualty are, clearly, tax deductible. Of course, even casualty losses must be due to a sudden, unexpected or unusual event in order to qualify as a tax deduction for the pond operation.

Casualty losses, at least if they have been labeled as the result of a legitimately declared “disaster,” can be utilized to recoup taxes paid in the previous tax year. If any pond business sustains a loss from a disaster in an area that is subsequently determined by the President of the United States to warrant federal assistance, special loss rules apply. Thus, the pond business has the option of (1) deducting the loss on the tax return for the year in which the loss occurred or (2) deducting the loss on the tax return for the preceding tax year.

Slashing insurance costs usually begins with shopping for competitive rates for the insurance coverage your pond operations need – and can afford. Going even further to actively manage the pond operation’s exposure to risk will slash those insurance costs even further. The alternative is no insurance and possible ruin when disaster strikes.

Finally, keeping loss claims reasonable and implementing loss control programs are two steps that can help even the smallest pond builder, retailer, distributor, or supplier keep insurance premiums down year after year. Choosing an insurance carrier that has a positive history in the business, sound financials and services in loss control and claims can also help make necessary insurance coverage affordable. But the time to think about that insurance protection is now – not when it may be needed.

Adequate, affordable insurance coverage for any pond business is an ongoing concern. With a few simple strategies, a reliable advisor and a little homework, affordable protection can – and should – become a reality.

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