Page 509 - Business Principles and Management

Unit 5

(1) fire insurance, (2) burglary and robbery
FIGURE 18-7 Important Factors in Selecting an Insurance insurance, (3) business income insurance,
Company and Agent
(4) transportation insurance, and (5) vehicle
insurance.
Fire insurance provides funds to replace
1. Can the company that the insurance agent represents furnish the
such items as buildings, furniture, machinery,
right kind of insurance?
2. Does the insurance agent have a proper knowledge of insurance? raw materials, and inventory destroyed by
3. Are the policies understandable? fire. Fire insurance on a building may not cover
4. Are the company’s rates reasonable? the equipment, machinery, and materials in the
5. What kind of service does the agent furnish? building. Separate policies may be required to
6. What kind of reputation does the agent have for helping when losses protect the contents as well as the building itself
occur? from fire loss. The owners of a building should
7. What reputation does the company have for settling claims?
obtain insurance to protect their investment.
8. Can the company help in reducing risks?
The occupants of a rented building should look
into insurance to protect their property inside
the building. You should know exactly what
the policy covers when buying fire insurance.
Some basic fire insurance policies may be extended to cover additional risks,
such as wind, hail, and hurricanes. Additional protection beyond the primary
peril is called extended coverage. It is obtained by paying an additional premium
and adding a special clause to the contract. Because extended coverage costs
more, businesses generally buy it only if the additional perils are fairly common
in their area. For example, West Coast businesses may buy earthquake insurance
because earthquakes occur there, but Midwest businesses usually do not need
this coverage. In some areas of the country, insurance companies will not sell
extended coverage for some perils because the chance of loss is too high. For
example, insurance companies may not be willing to sell flood insurance to
cover homes built in an area where flooding regularly occurs. In such cases,
businesses and individuals may be able to purchase insurance from the state or
federal government.
Burglary and robbery insurance provides protection from loss resulting
facts & from the theft of money, inventory, and various other business assets. Because
of the differences in types of businesses and operating methods, the risks vary
figures considerably, as do premium rates. Burglary and robbery insurance does not
cover the loss of products and equipment taken by employees or shoplifted
merchandise. Separate insurance is available to cover these losses, but it is
often very expensive. Businesses usually spend a great deal on security equip-
Of the top four most expensive ment and training to prevent these types of losses. However, they may purchase
catastrophes for the insurance insurance as well to protect against unusually large losses from shoplifting or
industry in the United States, theft.
three were natural events and Business income insurance (also known as business interruption insurance) is
one was the result of terrorism. designed to compensate firms for loss of income during the time required to re-
The most expensive was Hurri- store damaged property. For instance, after a hurricane, a damaged store suffers
cane Katrina in 2005. The esti- an additional loss because it cannot earn an income until its facilities are re-
mated total of insured property stored and it can start selling merchandise again. Some of its expenses continue
losses was $40.6 billion. The even though the business cannot operate, such as interest on loans, taxes, rent,
next three most expensive dis- insurance payments, advertising, telephone service, and some salaries.
asters were Hurricane Andrew Transportation insurance protects against damage, theft, or complete loss of
in 1992 ($21.6 billion), the goods while they are being shipped. Although the transportation company may
World Trade Center and Penta- be responsible for many losses during the shipment of goods, some losses may
gon terrorist attacks in 2001 be the responsibility of the seller or buyer. The seller can purchase insurance, or
($20.7 billion), and the North- the transportation company may provide insurance as part of the cost of trans-
ridge, California, earthquake portation. Anytime businesses ship products, they should find out if the goods
in 1994 ($16.5 billion). are insured and who is paying the cost of the insurance.

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