Disability Insurance Vs. Workers' Compensation

I have often been asked by business owners:  

Instead of getting a disability policy, can't I just add myself onto my workers' compensation policy?

While it is possible to add yourself onto a workers' compensation policy, the benefits are not the same as a disability policy.

Was this paper cut work related?  

Here are some of the similarities:

• Both may pay medical bills if you are hurt
• Both may pay disability and lost wages
• Both may pay a portion of your lost income
• Both will cost you based on your current income

Here are some differences:

• Workers' Compensation only pays for on-the-job injuries
• Workers' Compensation will only pay at most 2/3 of your stated income
• Workers' Compensation may only pay based on your stated payroll (even if you take a draw or have other forms of compensation)
• Workers' Compensation is based on the rate for your specific class code and you pay per $100 of payroll.  Disability is based on many factors.

When does it make sense to add yourself to your workers' compensation?

• If you can't qualify or afford disability insurance
• If you are in a 'low risk' field such as computer programming and the rate per $100 is relatively affordable.  
• As an additional protection in case you get hurt on-the-job
• If you have an abnormally high deductible for your health insurance
• If you are prone to accidents

If you are truly worried about losing your income from getting hurt then nothing will suffice for a good disability policy.  Many people buy life insurance and feel like they have taken care of their family, but if have a bad accident and you don't die then your family can't collect.  

Don't forget that not all disability policies are created equal either.  Make sure to read the small print because in some policies you may not be able to collect if you are able to do any other job.  If you are a doctor, you aren't going to like it if the company stops paying because you can get a job as a barrista.  

Please note:

When employers make workers' compensation claims against themselves, it's a red flag for claims adjusters.  This is because it is easier for an employer to exaggerate a claim than an employee, so be ready to defend any over the top expenses for your medical treatment.  

Disclaimer:

This answer is not a substitute for professional legal advice. This answer does not create an insurance agent-client relationship, nor is it a solicitation to offer legal/insurance advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed insurance agent in the appropriate jurisdiction before taking any action that may affect your rights.  

How to Save Money on Insurance For Start-Ups

The biggest mistake start-ups make is being too optimistic.  Of course, you wrote in your business plan that demonstrates to your investors that you are going to make $1,000,000 in the first year and turn a profit by year three, but that's not what you should be telling your insurance agent.  

As a start-up, cash will make or break your business. CASH IS KING.  You will often have to accept 60-90 terms to get orders, your vendors (and insurance company) will want cash upfront.  Here are a few tips to keep your insurance overhead as low as possible so you can turn your start-up into the business of your dreams:

Since its first store opening in 2005, Pinkberry has nearly 100 locations throughout the United States, Mexico and the Middle East...(11/30/2011: Pinkberry Website)

Be Conservative on Sales and Payroll Estimates

You don't know how much you are going to make the first year.  Your numbers are based on estimated sales based on estimated customers based on research and industry benchmarks.  Insurance policies are generally based on either annual sales or payroll, so the higher you estimate the larger monthly bill you are going to have during that crucial first year.   

How conservative should you be?  

It really depends on your business.  After the first year the insurance company will do a review (nice way of saying audit) with you and will adjust the yearly premium based on your actual sales or payroll.  Go here for a great FAQ on audits.  If you estimated sales of $50,000 per year and you end up doing that in the first quarter, you need to call your agent to adjust the policy so the payments will be spread more evenly.  The last thing you want is to estimate a super low sales or payroll figure, have a great year and have an extremely large bill when the insurance company audits you.  The idea here is to increase cash flow and lower overhead.  

Look at all your options with your independent agent when starting an insurance policy.  Keep in mind that your personal assets could be at risk even if you incorporate, so price shouldn't be the only factor in choosing your policy.  Don't know where to start?  Check out this blog post: Insurance 101 for New Business.

What Insurance Does a Dental Office Need?

I love to work with clients that truly are interested in protecting their business from unforeseen losses.  I can’t say that I have a favorite client, but one that comes to mind is Dr. Solomon Cantwell DMD .  He is a dentist that is truly dedicated to his customers, his staff, and the growth of his practice.  He is committed to keeping up to date with the latest dental technology and making his customers comfortable. 

Solomon and Joe in front of the dental office after talking business insurance.

Business Owners Policy and Workers' Comp

I have worked with him to make sure his equipment, liability, and building are all covered properly on his business owners’ policy.  In addition, we worked together to make sure that his employees had the proper coverage in case they were hurt on the job.

Employee Practices Insurancee (Sexual Harassment Insurance/Wrongful Termination)

We also went over the advantages of two other types of coverage including Employee Practice Liability Insurance (EPLI) and Data Breach Insurance.  EPLI is a coverage that is put in place in case an employee sues for wrongful termination, sexual harassment, or wage disputes.  It’s an important coverage that is often overlooked by many business owners because they don’t know about it or their agent never offered it.  There are actually more EPLI claims per year than General Liability claims per year in California. 

Data Breach

The Data Breach Insurance coverage is a relatively new coverage that was created in order to pay damages caused by loss of client information due to a breach in security (online or offline).  Most data breach policies cover: notifying your customers of the breach, paying an organization to monitor clients’ credit, repairing damaged PR, and even paying government fines for non-compliance.   Take a look at California's penal code relating to a breach.


Malpractice
Malpractice is for mistakes that the dentist makes when working on a patient.  An example would be doing a root canal on the wrong tooth.  Most dentists already have this coverage when we start working because it is often a requirement for working as a dentist, but there are many programs that can offer malpractice at competitive rates.  

Sizzling Insurance Tips for Restaurants and Bars

What kind of insurance do restaurants need?
Restaurants have unique risks that create some interesting exposures.  Depending on the size and services a restaurant may offer, there are different insurance products that the restaurant may consider purchasing.

General Liability
If a customer trips and falls or even if a customer spills hot coffee on herself (review of famous McDonald's case here); liability insurance would pay for such a claim.  Other claims include: choking, food poisoning, burns, etc.

Quick savings tip: To save on restaurant liability insurance, it's possible to find companies that rate on square footage instead of sales.  If you are a smaller restaurant that has a high volume of sales, then you could be paying too much.

Don't let restaurant insurance upset your stomach

Property Insurance
This is insurance for your equipment, improvements, and building if you own it.  If you are a tenant, then you need to review your lease to see what you are responsible for in case of a loss.  For example, maybe the last tenant installed a kitchen, but the lease may still state that the only thing the owner is responsible for is the four outside walls. If there is a total loss, you will have to pay to create an entirely new kitchen.

Quick savings tip: It is often less expensive to rate tenant improvements and restaurant equipment (anything bolted down) separately from business personal property.  That way you get the building rate instead of the rate for the things that can be stolen easily.

Business Income  
If your restaurant has to shut down due to a fire or a covered loss, you need this coverage to cover your costs and to pay you what you would have made (minus expenses that you don't incur during the loss such as payroll).  It's important to have at least 12 months coverage, but 18 or 24 months is ideal.  In case of a total loss, you may need to wait for building permits, construction delays, and negotiations with the insurance companies to be settled.  For more info on this business interruption, see this blog I wrote on it.

Quick tip:  Watch out for long delays in getting paid.  Often policies will include a 72 hour waiting period before this coverage can take affect.  Can you afford to lose three days of business?  What if that's a Friday or Saturday night?

Workers' Compensation
This coverage is mandated by California law, meaning you have to buy it even if you only have one employee.  The premium is a percentage of total payroll.  Restaurant premiums are currently between 2% - 6% based on the size, loss experience, and other discount factors.  Click here for more information on workers' comp.

Quick savings tip: In California tips are excluded from workers' compensation, so make sure you don't add them to your payroll report.

Stay tuned for my next blog that will highlight some more advanced coverage for restaurants.  Here are some examples of some other coverages that restaurants should think about including: sexual harassment, assault and battery, delivery driver coverage, and more.

How Insurance Helps Keep Your Business Going

Disability is important to many companies, especially one where the business owner is the main money maker. For example, a dentist or a doctor both may lose their practices if they were sick for six months. Many owners mistake Workers' Comp as a viable replacement, but workers' comp is only for on the job injuries or sicknesses.

If you come down with cancer and its not work related, then there is no coverage. under workers' comp. In addition, claims where an owner claims workers' comp against himself are looked at in greater scrutiny because there is more of a chance of fraud. Also, workers' comp only pays about 2/3 the wage you pay yourself. Many owners will pay themselves a low wage, but get most of their income from draws from company profits. Those draws won't be considered as part of the wage.

In addition, going without key coverages like workers' comp and liability insurance is a good way to get shut down as well. Workers' Comp is mandated by the state if you have employees, but many business owners tend to go with out it. If one is caught without it, your business could get shut down until you can prove you have it. Also, there is a fine for $1,000 per employee up to $100K.

Without the proper liability coverage, you can get sued once and lose everything on just paying legal bills. Insurance is the first defense from lawsuits. Even if you have an LLC to protect your personal assets, if the business is your main stream of income you could end up losing everything anyway.

Lastly, business income is a great way of protecting your company in case of a covered loss. Business Income is an important coverage that every company should have that can pay your lease, expenses, overhead, and even key employees in some cases. See my blog on business income for more information.

Make Sure Your Protective Systems Are Operational, or You May Get Hosed

Many policies have an endorsement that is placed on the policy if you claim that you have a protective safeguard i.e. alarm, fire sprinklers, etc. The protective safeguard endorsement is way a company can deny your claim.

For example, a company states on its application that it has a fire suppressant sprinkler system. The owner benefits by having a discount on his policy. Unfortunately, the system broke down and the owner didn't have the time or money to make the repairs. The owner never got around to telling the agent or the insurance company that the system wasn't working.

A few months went by and a tenant left a burning cigarette in a community trash can that started a fire. The owner is relieved that he has insurance for the $150,000 in damages. The insurance company finds that for a number of months the fire suppressant sprinklers were out and to the owners dismay, deny the claim.

The owner now must pay for the repairs and will get no payment for loss of rents.

Even if you don't own a building, this could apply to your office or even your home.
There is a similar endorsement that has to do with theft and burglary alarms.

Is your alarm armed every time you leave your office or house? Are you doing quarterly maintenance on your fire alarm systems? Are fire extinguishers tested? Are batteries replaced?

The company is giving a discount due to your protective safeguards, but if your system isn't operational then your claim could be denied. Make sure to ask your agent if you have this endorsement on your policy.

This is how the actual form on The Hartford policy reads.
"Exclusion

We will not pay for loss or damage cause by or resulting from fire, if, prior to the fire, you:

a. Knew of any suspension or impairment of any protective system so described in the property choice - schedule of premises and Coverages and failed to notify us of that fact; or

b. Failed to maintain any protective safeguard so described in the Property Choice - Schedule of Premises and Coverages, and over which you had control, in complete working order.

If part of an Automatic Sprinkler System is shut off due to breakage, leakage, freezing conditions or opening of sprinkler heads, notification to us will not be necessary if you can restore full protection within 48 hours." - Hartford Form PC 40 01 01 09

Insurance 101 for a New Business

Insurance is there to get you back where you were in case of an accident. In this litigious society, insurance is your first layer of protection against a law suit arising from an unforeseen accident. There are many types of insurance. Depending on your business you may need one or more policies.

General Liability - This is sometimes called the “trip and fall” policy because it is for third party claims when some one is injured. A third party is anyone that is not involved in the company including customers and the general public.

This covers your business, your work, and your even products after the products are in your customers hands.

Generally, the first time a business gets insurance is because a vendor or a landlord is requiring it. The standard requirements
$1,000,000 per Occurrence
$2,000,000 General Aggregate
In English this means: $1,000,000 per accident and $2,000,000 per year.

One should ask to get the insurance requirements in writing, so you can make sure you fulfill all of them. Many times these requirements are written into the lease or contract in its own section. Give this information to your insurance agent so he can get you the correct coverage to fulfill your lease

Workers’ Compensation - This is the second most common policy as it is mandated by the State of California and most other states to any company with employees. If an employee gets hurt during the course of work, workers’ compensation pays for the workers’ injuries and lost wages.


Without workers’ compensation the employer can become personally liable for employees injuries. In addition, the Department of Industrial Relations can put a stop order on your business and fine you $1,000 per employee.

Professional Liability – This is an important coverage if you are a consulting or giving professional advice. This is also known as Errors & Omissions insurance and Malpractice in the medical field. Consultants, technology professionals, lawyers, accountants, bookkeepers, and other professionals should all carry this protection.

Make sure that you understand the insurance you are buying before signing anything. An insurance policy is a contract and may require you to have certain protections in place in order for you to be covered. Make sure to discuss with your agent your specific needs based on your specific risks in addition to contract requirements from your vendors.