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Coverages, deductibles and policy limits

Posted on Oct 27, 2011

Insurance is purchased to protect you from losses that may be significant to your organization. But what is a significant loss to one organization may be a trivial loss to another. Therefore, coverages, deductibles and policy limits must be chosen carefully.

Coverages

Some of the various insurance policies available to organizations include:

• Business Income
• Accounts Receivable
• Commercial General Liability (CGL)
• Property
• Crime
• Commercial Automobile
• Errors and Omissions
• Directors and Officers

Every organization requires its own set of coverages. Discuss your needs with your insurance representative. The more your representative knows about your organization, the better prepared he/she will be to advise you about the type of insurance you need.

Periodically review your insurance policy with your insurance representative. Over time, your organization may grow and your insurance needs may increase. Alternatively, you could find yourself paying for coverage you don’t need.

Deductibles

Deductibles ensure that insurance is doing what it is intended to do – pay for the substantial losses, not the minor ones. Deductibles help to keep premiums low. Essentially, the deductible is the amount for which you are self-insured. The higher the deductible, the lower the insurance premium.

To determine the amount for which you are prepared to self-insure, consider the following:

1. Look at the premium levels for various deductible options. The money saved on the premium by raising the deductible may or may not be worth it.

2. Consider talking with a risk management consultant to determine optimal deductible levels.

Policy Limits

You want to have adequate coverage without being over-insured and paying too much. To make an accurate calculation, work with your insurance representative and consider the following:

1. The value of your property:  If you lost everything in a fire, what would be the cost of that loss?

2. Your potential liability exposure:  Property is only one aspect of what insurance covers. Insurance also protects you if you get sued. It pays for legal costs and damages if you’re found to be liable for a person’s injuries or damage to their property. Some operations are higher risk than others. A nightclub, for example, is more vulnerable to lawsuits than a flower shop and will therefore need higher liability limits.

3. Past losses:  Use your claims history as a guide when comparing quotes for different policy limit options.

http://www.ibc.ca/en/Business_Insurance/Buying_Business_Insurance/Choosing_Coverage.asp