FAQ - Burnette Insurance

The first concern you will have in searching for the right insurance coverage is finding an advisor to help you accumulate and evaluate your needs. You will have a few options the most common include:

An independent insurance agent is an agent who legally represents the companies with which they contract. This type of agent will be able to quote and bind coverage for you as needed. Usually, he or she will be a local business owner who will put your concerns first and will shop available markets to find the best deal. Look for a medical specialist. They will have a variety of insurance products from which you can choose. If they do not represent several companies, it may limit your choices and reduce your chances of finding the best coverage.

A Company sales representative is sometimes called a direct writer or captive agent. This is an agent who works for the insurance company or represents only one company. This type of agent will usually be very knowledgeable regarding the insurance products they sell. Unfortunately, they may not be able to offer a choice or alternatives. Many business associations will have a representative to market the endorsed insurance programs. These programs are usually very competitive but may not offer alternative choices.

The key to getting the right insurance coverage is to find an agent or broker who knows your business and earns your trust. Take the time to find the right person and then use their expertise to help you make the right decision.

Designations like CPCU, ARM, CRM, CIC, or CLU are indications of an achieved level of education. Look for these as guides but interview the candidates and pick someone who understands the insurance needs of your business. Your needs are unique and it will be to your benefit you to find someone you can work with for many years as your company grows and changes.

You need to evaluate the cost to replace the tangible assets owned by the company in order to determine the proper amount of insurance to purchase. Imagine that you had a total fire loss tonight. What would you have to replace in order to refurnish and/or rebuild to what it is to day?
Things to remember:

Fixed Assets (shown on your balance sheet)
Assets Expensed- not capitalized
Office supplies including stationary, advertising items, perishables, etc.
Supplies, samples, laboratory supplies
Books, journals, reference Materials
Artwork
Equipment on loan (television)
Files & file contents
Computers including software and laptop computers off premises
Building items your lease says you are responsible for- air conditioning or plate glass
Property commonly kept at other locations-home computers

Hardware scheduled on a computer schedule will have broader coverage including coverage for loss due to power surges or loss of data. Software may need coverage as well. Some software vendors will replace lost or damaged software if it is properly licensed. Consult your vendor before a loss to be certain.
Note: Regular and complete backups can be your best insurance for software and data protection.

C. Business Income or Insurance for Interruption of Your Business

This coverage is very important to you and very inexpensive. Make sure it is included in your policy. This coverage provides funds in the event your physical location is closed due to a covered property loss (fire, theft, hurricane, etc.). This amounts to disability coverage for your office. The policy will reimburse you for lost revenues providing payment for continuing expenses and lost profits. Coverage ends when your premises are reopened for business. Most policies include coverage for extra expenses as well. You will need funds for a temporary office, expediting costs, advertising temporary location to your customers and the cost to move back to your original office space if required in your lease.

D. Employee Dishonesty

A growing cause of losses to businesses is employee theft or embezzlement of funds. An employee dishonesty bond can be added to your policy to cover this.

E. Equipment Breakdown Coverage

If you have equipment that is the source of significant revenue to your business, you may want to evaluate this coverage. It will cover the cost to repair or replace the equipment caused by an accidental breakdown plus the lost revenue can be reimbursed for the period the equipment is unusable.

F. Property Coverage Options

Always request “special” or “all-risk” coverage.
Review your need for earthquake or flood coverage. This is always excluded from property policies.
Consider higher deductibles to reduce costs.
Try to use companies rated “A” or better by A.M. Best

Liability Insurance

Most professional office packages include commercial general liability. This covers bodily injury or property damage claims arising from the operations of your business.

Make sure your policy includes personal injury, advertising liability, products liability, and contractual liability.

Get prices for limits of $1,000,000 to $5,000,000. Many times the cost for the higher coverage is minimal. Some companies will offer you increased coverage through a separate umbrella/excess liability policy. This is very good coverage and should be considered.

Ask your insurer to include Employee Benefit Liability. This provides coverage for errors and omissions in the administration of employee benefits programs.
Another endorsement that should be included and is an inexpensive coverage is non-owned and hired automobile liability. Non-owned autos would be employee owned vehicles used for the business. This would include coverage for outside marketing employees or employees running errands in their own vehicles to the bank or post office.

Hired autos would be rental cars rented by the business. This coverage is usually included with the non-owned liability.

Note: This coverage is for third party damages only and will not pay for damages to the employee’s car or the rental vehicle. You will still need to consider the “collision deductible waiver” when you rent cars.

Employment Practices Liability

This is an explosive area of litigation and potential risk to an employer. Coverage under this policy is provided for employee suits for alleged sexual harassment, discrimination, wrongful termination and other related issues. This coverage provides valuable legal defense coverage even if you are innocent of the claimant’s allegations. Coverage can be purchased for just about EEOC complaint made against your company or its directors and officers.

IV. Director’s and Officer’s Liability Insurance

Director’s and Officer’s Liability Insurance has historically been a coverage for public companies but now smaller companies are seeing that they have exposure to litigation that can be covered by a D&O policy. Public companies have the exposure of litigation by their stockholders but stockholder derivative suits compose only about 49% of D&O claims. Customers, creditors, employees or other interested parties bring the remaining 51% of claims. These claims should concern smaller companies as well. Since a small privately held company doesn’t have the same stockholder concerns, the premiums reflect this and are considerably less.

If a small company has venture capital investment, then the concern is greater due to the obligation the management (directors and officers) has to the protect the investment in the success of the firm.

Anyone who agrees to serve as the director or officer of a company exposes their personal assets to litigation. It is in their best interest to see that there is coverage in place that will provide defense and money to pay damages in the event of litigation. There are laws that offer protection to the directors and officers of a corporation. These laws will allow for a corporation to defend and indemnity the directors and officers but the laws also provide for situations where a corporation can not indemnify or protect the directors and officers. Even if the company can defend you, does it have the funds to provide for an extended defense? Or what if the company has failed and is no longer around to provide for the defense. A director and officer’s liability policy will provide this defense as long as the litigation occurs under the terms and conditions of the policy.

You can also add coverage under a private company director and officer’s liability policy for the corporate entity. This means that claims that name the company and not individual directors and officers can now be covered. Again, these claims can come from employees, former employees, customers, competitors or creditors. Have you ever hired an employee that had an employment contract with a former employer? Are you sure that employee complied with the “non-compete” provisions of the contract? This could generate a lawsuit against your firm.

Another important coverage that can be added to your D&O policy is protection against employment related events such as discrimination, wrongful termination or harassment. This is probably the fast growing area of litigation against companies. We are finding that a small company is vulnerable to these claims because they are the least likely to have developed a strong human relations department and may not be in compliance with state and federal employment laws.

V. Worker’s Compensation

A. Statutory Worker’s Compensation

This coverage is mandatory in most states if you have three or more employees working full or part-time. Benefits and costs are highly regulated by each state; so most policies will provide identical coverage.
Premiums are based on payroll estimates for twelve months subject to final audit to adjust for changes.

Payroll subject to inclusion is all compensation including bonuses. One common exception is overtime. You are allowed to reduce over-time to its regular time equivalent.

Check the proper classification for your employees. Most, if not all, of your payroll should be classified as “physician and clerical.” The exceptions to this would include outside marketing employees or facilities with other operations such as overnight care or home health services.

Note: Many “alternative” workers’ compensation programs are springing up around the country due to a crisis caused by many factors. Make sure you understand the terms of the policy you purchase. Avoid policies where you can be assessed for additional charges or that are provided by companies not covered by your state insurance insolvency fund.

B. Employer’s Liability

This covers claims that might fall outside the normal scope of the employer’s responsibility under the Workers Compensation Act. This provides liability coverage to the employer for accident and sickness claims where the employer is found to have liability due to negligence. This is included in most workers’ compensation policies but very inexpensive coverage. A small amount, usually, $100,000, will be included in your standard policy. Increasing this coverage is easy.

VI. Errors and Omissions Liability

Provides coverage for claims that allege you failed to perform in a professional manner. Coverage is commonly called E&O. This coverage is important to all professionals including: physicians, attorneys, accountants, software developers, business consultants, architects, engineers and anyone else who feels they might be subject to claims of professional malpractice.

Professional liability insurance is a big budget item for most businesses. Making a mistake in your purchase of this coverage could be the most traumatic of all the insurance decisions you make. The right insurance company can help you prevent claims through good loss control or risk management.

A company with a strong financial condition. Litigation can take 3-5 years to get to court. You want to choose company you have confidence will be around to defend you down the road.
Good risk management assistance from the company.
A comprehensive policy. Ask for a copy of the policy and specifically the exclusions. You can tell a great deal about a policy by what it does not cover.
Experienced claim professionals. Expert claims personnel and defense coverage is what you are buying. When a claim occurs, this when you find out if you made the right decision. If you have any doubts about a company, err on the side of safety and choose a program with the strongest defense network.

Purchase adequate limits of insurance. Policies will have a limit per claim and an annual aggregate. The aggregate should be two to three times your per claim limit. One claim should not be able to exhaust the coverage under your policy.
Understand the claims-made coverage and the importance of continuous coverage. Your retroactive date should match when you started your claims-made coverage. Careful thought should be given any change you make in your retroactive date.
Get prices for higher limits of liability. Often, you will find increasing coverage is cost effective.
Make sure your corporation and employees are named on your policy. Most legal actions will name a combination of parties.
If you employee contractors address such issues as deductibles, prior acts and extended reporting (tail) endorsements in your employment contracts. Advise employees to get professional consultation for the handling of their liability for events occurring prior to your employment.
If you employee contractors, make sure they are properly insured. Many times you can add professionals under an endorsement but they are not automatically covered. You may find it more economical to have these professionals purchase private coverage. Review your options both ways before making a decision.

Note: There are a number of different sources for obtaining professional liability insurance including: traditional insurance companies, self-insured groups, captive insurance companies, group purchasing programs, risk retention groups, and others. Make sure you understand what you are buying. Each may have advantages and disadvantages. If you are uncertain, find an insurance professional that can guide you through this complicated process and help you make the right choice.

A. Group Employee Medical Coverage

This coverage will be the most used and the most visible insurance coverage you have in your company. Most employers will provide this coverage to employees in order to attract and retain quality employees. This insurance coverage is changing rapidly just like your business. The evolution of managed care has spawned many different forms of coverage available to you. Some common ones include:

Traditional Indemnity- a plan that allows completes freedom in selecting a caregiver. The only usual constraints are the “usual and customary” charges for your area.

H S A –(Health Savings Account) a plan where you purchase a qualifying high deductible major medical insurance program and then invest the savings from the lower premiums in a special qualified savings account. Your savings account is used to pay claims under the high deductibles and co-insurance on a pre-tax or untaxed basis. You can accumulate unspent medical dollars for future use.

PPO- (Preferred Provider Option)- a plan that provides a higher benefit if the member uses a preferred caregiver usually selected from a published list. Coverage is provided outside of the network but at a lower level and with more restrictions such as “usual and customary” limitations.

POS- (Point of Service)- a plan that requires initial treatment to be provided by a “gatekeeper” physician. The gatekeeper provides the referral to specialist and must approve any treatment outside of his office. Usually, the insured person will have a choice of gatekeeper physicians and can change as needed. Coverage is also provided outside the network.

HMO- (Health Maintenance Organization)- a plan where all care is directed by the facility physician. Many times the HMO organization employs and owns the facilities. Coverage is usually restricted to the HMO facilities and severely penalizes any care rendered outside of approved care.

The cost of healthcare has been reduced by the introductions of managed care and your cost will be reduced by the amount of choice the plan you choose gives your employees, the demographics of your employee group, and your past medical history.

In order to obtain a quote, you will need to provide a company with a census. The census includes the date of birth, sex, dependent status, and coverage requested for each employee. Quotes can usually be obtained in a few days but it takes longer to get underwriting approval. Be prepared to answer health history questions and it is possible that medical records will be required if a group member has had any medical problems. This process can take more than 30 days, so expect them and be prepared with alternatives!

Employer sponsorship of a health plan is important to obtaining the best terms of coverage. Any company will look for 75% of your employees to participate. If the percentage is lower, you will have to explain why. Other insurance provided by a spouse’s employer is an acceptable reason.

Your employees will expect you to pay some or all of the cost of the insurance. You decide the level of participation, but you must be fair in its application. To be safe, you should always pay the same dollar amount or percentage of premium for all employees including yourself. Be sure you get good legal advice before you discriminate in any way.

Note: If you have or have had in the last 12 months, 20 or more employees, you are subject to Federal COBRA mandates. Make sure your agent or broker advises you on the implications and notification requirements.

B. Dental Insurance

Dental coverage is considered a luxury by many and can be relatively expensive. Small groups usually do not get very cost-effective options. Review options carefully to make sure you are getting a true insurance plan and not just a “pre-paid” dental or a reduced schedule of costs at a participating dentist’s office. These plans can be useful but may not always please your employees.

C. Vision Insurance

Very few plans offer vision coverage. A regular medical plan will cover injuries or illness related to your eyes but usually there is no coverage for vision evaluation or correction. Vision coverage is available but benefits are usually very limited.

D. Group Short Term Disability

This coverage is provided for disabilities after a short elimination period. The elimination period acts as a deductible. Usually the benefits begin after the seventh day of disability for accident or sickness. Benefits are limited to a percentage of pre-disability earnings subject to a weekly maximum, for example: 60% up to $500 a week.

If you provide this coverage as an employer-paid benefit and take the expense as a tax-deductible business expense, any benefit paid to a covered person will be subject to income tax. You should consider making this benefit an employee-paid benefit. You can withhold the premiums through payroll deduction.

E. Group Long Term Disability

This is the least expensive way to get long-term disability coverage. Benefits are based on a percentage of pre-disability earnings subject to a maximum benefit level. Elimination periods range form 30 days to one Year. The longer the elimination period chosen, the lower the premium.

To get a proposal, you will need to provide the sex, date of birth, occupation and salaries of the group members. Benefit levels will be offered based on the needs of the group. Medical underwriting may be required if the plan is optional or if the benefit levels are considered high.

Make sure you choose a quality insurance company with a commitment to the industry. Benefits are payable to age 65. That can be a long time to depend on an insurance company for your continuing living expenses if you are disabled. Make sure the company is strong financially. The company should have earned an A.M Best’s rating of “A+ or A++.”

Premiums are lower on a group basis but often are not convertible or transportable. You may wish to supplement your group coverage with an individual policy.

F. Retirement Plans

There are many options available to choose from including 401k Profit Sharing Plans, SIMPLE 401k’s, SIMPLE IRA’s, SEP’s, and Individual IRA’s. Others may suggest the use of life insurance policies to plan for retirement. This is an area where it is critical for you to get professional advice. Ask your CPA to review and make suggestions before you purchase any plan. Your financial planner or insurance agent should be happy to make a presentation to your CPA. If they are not, keep looking for an advisor who is.

G. Individual Long Term Disability

This is a critical insurance coverage for professionals. Most financial planners will tell you that protecting your income stream is the most important thing you can do for your family. LTD coverage will provide coverage 24 hours a day in the event you have an accident preventing you from practicing your profession.

Benefits are subject to an elimination period of 30 days to one year and a monthly maximum benefit. Many options are available such as cost of living increases, social security riders, fixed and variable pricing, partial disability riders, nursing home coverage, premium waivers and more. Be sure to get a good explanation from your advisor before you buy.

Again, make sure you choose a quality insurance company with a commitment to the industry. Benefits are payable to age 65. That can be a long time to depend on an insurance company for your continuing living expenses if you are disabled. Make sure the company is strong financially. The company should have earned an A.M Best’s rating of “A+ or A++.”

Your needs will change, so be sure to buy a product that will be adaptable to you.

H. Business Overhead Coverage

Long term disability provides a benefit payable to you for your personal expenses. Business overhead coverage pays a benefit to the corporation in the event the covered person (the physician) becomes disabled. The loss of a physician will impact the revenues and/or costs of the facility. Those revenues can be insured through the use of Business Overhead Insurance. The disability benefit is used by the facility to pay ongoing expenses and possibly to cover the cost of replacement for the disabled executive.

The normal benefit period for business overhead coverage is two years. This allows time to determine if the executive will ever be able to return to his former duties. If not, this benefit period allows enough time to recruit a replacement, sell, or close down the facility.

I. Key Man Insurance

A “key man” is anyone vital to the operation of your business. The business has an interest in insuring their availability or ability to generate revenue. You can insure a key man for disability or life insurance. The benefits are payable to the corporation and used to replace the person and/or replace the revenues generated by the key person.

Discuss this with your tax advisor, the cost of this insurance may be a tax-deductible expense to the business.

J. Buy- Sell Insurance

This insurance is used to fund “Buy-Sell” contracts between partners in a business. Your attorney would assist you in drawing up contracts to provide for a seamless transfer of ownership in the event one partner dies or is disabled. A prearranged agreement would set a price or a pricing formula to determine the purchase price of the missing partner’s share of the business. The insurance is used to pay the settlement.

For example: if partner “A’s” value in the business were $500,000, partner “B” would purchase $500,000 in life insurance on partner “A”. If partner “A” expires unexpectedly and the contract outlines a purchase price of $500,000, a life insurance policy would pay the benefit to partner “B” to be used to purchase partner “A’s” ownership from his beneficiaries. The buy-sell contract would include all of the arrangements set forth contractually, so there would be no need for negotiations at the time of bereavement. The heirs of partner “A” would have a selling price and partner “B” has a set purchase price for the ownership stake.