I was recently at an event talking with a local business owner. We were discussing the last book she read and how much she enjoyed it. Obviously she was a reader, so I asked her if she also read her entire insurance policy. Like most business owners, she hadn’t because she thought reviewing the declarations pages was sufficient. However, this is a big risk because commercial insurance policies are not created equal. While declaration pages all appear the same, the coverages can be vastly different.
A declaration page is like the cover letter of a fax transmission. It states the basic information about the proceeding pages. When it comes to faxes, this page is often ignored, but the opposite often occurs with commercial insurance policies. Often, the insured only focuses on the declaration page and ignores, or doesn’t understand, the proceeding pages. This is concerning because beyond the declaration page, each insurance policy has several parts that outline the details of the coverage such as who is a named insured, policy conditions, limitations, exclusions, etc. These additional pages detail coverage restrictions and exclusions that would not be apparent from looking at the declaration page. While many business owners will read an entire book that costs $25, they may spend $80,000 on an insurance policy and only read the cover page!
Businesses all assume risk and purchasing an insurance policy is an opportunity to pass off some of that risk. But insurance carriers are also for-profit businesses so they are selective and cautious with how much risk they want to accept. If a carrier wants to avoid certain risk or exposures they can exclude it entirely in your policy, add a sub-limit to reduce how much coverage it would provide and more. This is accomplished with the endorsements, exclusions and limitations which are added into the policy forms. It is critical to understand all aspects of each policy you purchase including gaps or limitations.
Keep in mind that when a claim occurs the adjuster assigned to your claim will first review the details of your policy. The adjuster does not look at the declaration pages until it is confirmed by reading the related coverage forms, endorsements, exclusions, and policy conditions that the policy does provide coverage. Only then will the adjuster review the declaration pages to determine if you have sufficient limits. So even if a declaration page shows a limit of $20,000,000, if the loss/claim is not covered in the policy language or has limitations, then the declaration page limits are irrelevant.
Whether you are paying $5,000 or $500,000, you should leverage the expertise and knowledge of a trusted advisor who understands the differences between the coverage forms and can clearly explain any gaps or vulnerability and correct them, if needed. Your advisor should strive to understand all of your businesses exposures, assets, revenue streams and interests to ensure that you have the proper limits along with the proper coverage. The purpose of any insurance policy is to make a company whole after any loss, including the loss of revenue or clients which can be a substantial loss for many businesses so it is imperative to have the right coverage in place. Your policy may be your company’s only safety net, don’t wait until a claim to find a tear in the net. If it doesn’t work correctly the first time, chances are you won’t get a second try.
Do you need advice on insurance for your business? Contact me at 610.966.1315 to have a conversation about the best strategy for your business.
Insurance products offered through Univest Insurance, Inc., a licensed insurance agency affiliate of Univest Corporation, are obligations of and underwritten by unaffiliated insurance companies. They are not insured by the FDIC or any other agency of the United States and are not deposits of or guaranteed by any bank.