Most everyone makes a few resolutions for the New Year. Our experts say business owners should use the end of the year to review their insurance coverage and resolve to be better protected from life’s predictable and unpredictable circumstances.
Tony Palumbo, owner and president
Palumbo Insurance Associates
Tony Palumbo founded Palumbo Insurance Associates in 2009, after a 30-year career that included stints running an international brokerage in Washington, D.C., and representing a large national company in a four-state region. Palumbo Insurance Associates offers domestic and international insurance for individuals and businesses, while specializing in policies for healthcare professionals and federal government contractors. Palumbo is an active member of the Harford County Chamber of Commerce, Army Alliance, Northeastern Maryland Technology Council, Association of the United States Army, Armed Forces Communication and Electronics Association, and Acadiana Society for Human Resource Management.
Betsy Campion, owner and president
Betsy Campion founded Campion Insurance in 1997 after more than 10 years in the industry. Campion Insurance is an independent, Bel Air-based agency offering auto, home, life, health and business insurance. She is chair of the Harford Business Roundtable for Education, is a member of the Board of Trustees at John Carroll School, served three terms on the Harford County Chamber Board of Directors and for eight years chaired the Ripken Stadium Management Board.
Adam Freeland, Certified Financial Planner™
Harford Financial Group
Adam Freeland is a Certified Financial Planner with Harford Financial Group located in Bel Air. He specializes in working with individuals and couples to meet their retirement income needs. He also works with businesses and business owners in asset protection and growth, along with business succession planning. He is a veteran of the United States Navy as well as a holding an M.B.A. in Corporate Finance from Johns Hopkins University.
Insure to Protect
“When you decide to own a business, you potentially expose yourself, your assets and your family, not to mention your business, to a variety of risks,” says Palumbo. “Adequate and appropriate insurance acts as a barrier between an unforeseen incident and potential financial ruin.”
Campion concurs, and suggests business owners take a lesson from tropical storm Sandy.
“All businesses need to have a contingency plan to continue as uninterrupted as possible should a disaster occur. All businesses need a backup plan should their building be damaged or if their phones and Internet are interrupted for a long period of time. They need to have their insurance information off premises with all the pertinent phone numbers for claims if their insurance agent’s office is unable to communicate appropriately to its clients for a period of time. Vehicles need to be protected and removed from areas that could be affected by a disaster such as flooding. We all need plans for different scenarios before a disaster occurs,” Campion says.
Palumbo points to insurance types most every small business needs: business owners, general liability, package policy, workers compensation, umbrella, commercial property and commercial auto.
“Don’t sugarcoat your exposure to risk. There’s nothing wrong with wanting to save money on premiums, but lying to yourself about the risks you face is not the way to do that,” he says. “For example, don’t skip on commercial auto insurance simply because no one but you runs errands for the business.”
There are some optional coverages Palumbo and Campion recommend, including business interruption, errors and omissions, professional liability, fidelity bond, surety bond, data breach, employers liability, and key person insurance.
“All businesses that keep confidential information about their employees and/or clients need to be protected from the loss, theft, accidental release or accidental publication of personally identifiable information,” Campion says. “These breaches occur from unauthorized access by a former employee or vendors, stolen or lost paper files, stolen or lost laptops or computer disks, as well as stolen credit card information or employee error or oversight.”
Palumbo adds, “New laws make it very costly to comply with new notification and remediation requirements if that information is lost, stolen or hacked. If you provide IT services and systems administration, you are at risk as your customers depend on you to protect their computer systems and networks. All businesses should carry data breach insurance.”
Another must, if your business has employees, is employment practices insurance.
“Employers’ liability insurance comes into play when an employee claims they have been wrongly terminated or claims that there is wrongful discrimination, harassment, unfair labor practices, wage and hour violations or a breach of an employment contract,” Campion explains.
Both Campion and Palumbo agree: Don’t wait until your business gets “big” to buy insurance.
“Your exposure to insurable risk does not start once the business is successful,” Palumbo says. “Not having the proper insurance when you first start your business could prevent it from ever reaching the point of success.”
Insure to Plan
Financial adviser Adam Freeland uses insurance as a tool when advising business owners.
“Business owners need to think about what would happen if something happens to them. They might not want the business to go to their legal heirs. However, they want to make sure their heirs are protected and able to benefit from the equity in their business that they worked so hard to build. People set up buy-sell agreements to address that, and those are typically funded with life insurance,” Freeland says.
He explains that life insurance also can be used to shield heirs from estate taxes.
Freeland explains that one aspect of the fiscal cliff – the sun setting on certain laws Jan. 1, 2013 – is the amount on which heirs have to pay taxes. At present, inheritances under $5.12 million are exempt from estate taxes. Unless federal legislators act, that threshold will return to $1 million. As of press time, President Obama proposes a $3.5 million inheritance tax exemption.
“Assuming your estate may be worth more than $1 million, in 2013 heirs may have estate taxes up to 55 percent on anything above $1 million. For smaller businesses this is a concern. You may need life insurance to cover estate taxes,” Freeland says. “I recommend business owners do adequate estate planning fiscal cliff notwithstanding.”
A second area Freeland sees as a concern is when business owners don’t understand the real value of their businesses. Freeland notes, “I often see people who don’t understand what the value of the business will be without them. Sometimes, it doesn’t have a lot of value.”
Freeland says business owners may need greater personal and retirement savings because they may not be able to sell their businesses.
“I recommend business owners consult experts to determine the true value of their business, then, once that is known, establish processes to make it profitable and sustainable without you in the business for the value they assume it is worth,” he says. I95