Insurance: Mind the Gaps!

“Everything gets trimmed,” decided business owner Dovid Weinman, and insurance was at the top of the cut list. His Amazon business was doing pretty well, and working out of his garage kept overhead at a minimum, but now, with his new production line in the works, Dovid needed to keep his expenses down, and every dollar counted. He figured switching to bare-bones insurance policies would reduce the annual charges by a couple of hundred dollars. With similar savings in a few expense categories, he’d be able to advance his new product line without paying hefty interest rates to finance the purchases.

Is cutting coverage a smart way to save?

Boring but Vital Protection

Insurance is like a roof: a boring but vital thing we don’t think much about until there’s a leak. And like a roof, going the cheap route of insuring property or a business can leave you with massive damage if a storm hits. The main job of insurance is to protect against unaffordable losses. Saving a few hundred dollars by leaving oneself open to bankruptcy after a fire, flood, or lawsuit is a bad trade-off. I asked Yaakov Willner of Fairmont Insurance for his expert input and perspective on this vital topic, and he shared some common insurance shortcuts or mistakes that can leave people dangerously unprotected.

A Renter Isn’t an Owner

Insurance contracts are very specific about who is or isn’t covered. One typical error is a renter thinking the landlord’s home insurance protects them. When Yaakov sees fund-raising campaigns for renters who lost all their belongings to a disaster, he feels doubly bad: once, for the unfortunate loss, but also because it could have been easily prevented with affordable renter’s insurance. One case even extended into a liability lawsuit when an injured firefighter sued the tenant! If you’re not on the policy, you aren’t protected.

Business is Business

Home-based businesses also often fall into an insurance gap. Just because something happens in an insured house, doesn’t mean that homeowner’s insurance will pay for it. Most residential policies will cover just very limited business-related claims. Consider potential losses from ruined inventory or liability protection for product-induced injuries, employees who cause damage, or merely the delivery guy who hurts himself while picking up a business shipment. In many cases you can add significant coverage for business-type exposures to a homeowner’s policy. And unless you’re a surgeon or run an airline (working at home?!), business insurance can be surprisingly affordable. A home day-camp policy that costs just a few hundred dollars may provide $2 million in coverage! Giving up full protection to save small money is a bad bet.

Protecting Your Goods

Insurance companies are not picky just about whom they cover (i.e., owner vs. renter or resident vs. business) but also what they cover. Some homeowners default to the coverage minimums required by banks and don’t pay a bit extra to cover all the contents within their homes. Home lenders only care about insuring the structure (to cover their mortgage loans), and standard polices cover just a limited percentage of the home content’s value. Without proper insurance, who will pay to replace many thousands of dollars’ worth of destroyed home contents? Very few can easily afford to suddenly spend a fortune on furniture, clothing, kitchen goods, and myriad other things we use in everyday living. And cherished jewelry and silver reimbursements are very limited on regular insurance policies unless additional coverage is specifically added. Much heartache can be avoided when adequate coverage is secured, and a solid insurance policy is well worth the money.

Business Coverage Complications

Commercial insurance can be much more complicated since every business is different and has unique risks. Owners and executives need to consider if they require cyber insurance, professional liability insurance (errors and omissions), employment practice insurance, marine and cargo insurance, and many others. Similarly, business income insurance covers the loss of income during a temporary shutdown which can quickly lead to bankruptcy if not covered. In real estate, for example, investors need to cover loss of use, rental income that’s lost while a property is repaired or rebuilt. Insurance is vital, but it can be complex too. That’s where brokers come into the picture.

Get Insurance Help

A good insurance broker takes the time to learn the customer’s situation and preferences. Based on this knowledge, an insurance package can be designed to ensure that sufficient coverage is in place at an affordable rate. Commonly, an in-depth risk review uncovers some areas where the client is underinsured and others where they are paying for unnecessary coverage. By cutting out only needless insurance, Dovid may be able to keep his business protected while still unlocking the money he needs to grow.

Note: This column is for informational and educational purposes. As noted, insurance is complicated and nuanced. Readers are encouraged to speak to licensed insurance professionals about their personal risks and coverages.

Just by the Way: Breaking Insurance Rules is Senseless

Sometimes people omit information provided to insurance agents or break the terms of insurance contracts, either erroneously or purposely, thinking that they are saving money. Examples may include allowing unlisted drivers to drive rented cars, not disclosing home-based businesses, or hiding medical conditions. In addition to potential legal and halachic problems that may result from this, an insurance mistake or trick that is hidden for years, can easily come to light after an accident. Then, insurance companies use investigative teams to rip through the legitimacy of every claim. They conduct site visits and comb through records, looking for the possibility that the policy was issued improperly. If so, they will deny the claim and in cases of fraud, may pursue criminal charges as well. Undermining your insurance coverage through sloppiness or shtick makes all your premiums potentially worthless while putting yourself in legal jeopardy. Not a smart way to save money.

Want to dig deeper?

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