Start & Run a Coffee Bar. Tom Matzen
difficulty, and use your premium dollar where the protection need is greatest.
(d) Decide what kind of protection will work best for each risk:
• Absorbing risks
• Minimizing risks
• Insuring against risks with commercial insurance
(e) Insure the correct risk.
(f) Use every means possible to reduce costs of insurance:
• Negotiate for lower premiums if loss experience is low
• Use deductibles where applicable
• Shop around for comparable rates and analyze insurance terms and provisions offered by different insurance companies
(g) Risk exposure changes, so a periodic review will save you from insuring matters that are no longer exposed to the same degree of risk. Conversely, you may need to increase limits of liability. Review can help avoid overlaps and gaps in coverage, and thereby keep your risk and premiums lower.
(h) If you are pleased with a particular broker who can handle your various forms of insurance, it is preferable to be selective and have just one broker company. An advantage of the larger broker firms is that they have a pool of insurance professionals, expert in various areas, that you can call on as resource people.
(i) Attempt to keep your losses down in every way. Although your business may have adequate coverage, losses could be uninsurable, exempt from coverage, or have a large deductible. Problems with insurance coverage could seriously affect the survival of your business.
3. Types of Business and Personal Insurance
The types of insurance you might need will vary according to the structure and concept of your coffee bar. The following overview of insurance policies is provided to make you aware of what exists and of what might be appropriate for your business. These types of insurance are not necessarily recommended; only you can decide what to buy after an objective assessment of your needs and comparative research in a competitive insurance market.
3.1 General liability
A general liability policy covers negligence causing injury to clients, employees, and the general public. The policy is normally written up as a comprehensive liability policy which will encompass such things as:
(a) Money you must legally pay because of bodily injury or damage to the property of others.
(b) All emergency, medical, and surgical expenses incurred by an accident.
(c) Expenses for investigation, your defense, settlements, and a trial.
3.2 Products or completed operations liability
This policy offers protection against a lawsuit by a customer or client who used your product or service and, as a result, sustained bodily injury or property damage from it.
3.3 Errors and omissions liability
This coverage protects you and other professionals against litigation arising from losses incurred by your clients as a result of an error or omission in your advice to them.
3.4 Malpractice liability
This insurance protects you from claims arising from any losses incurred by your clients as a result of negligence or failure on your part to exercise an acceptable degree of professional skill.
3.5 Automobile liability
This coverage includes other people’s property, other automobiles, persons in other vehicles, and persons in the insured automobile.
If you are using your car for business, exclusively or occasionally, it is important that you have your premium cover business use. It is possible that your current motor vehicle insurance policy has a premium based on personal use only. Problems could occur if you are in an accident and it is discovered that your car, insured for personal use only, was in fact used for business.
3.6 Fire and theft liability
It is important to make sure that you have satisfactory coverage for fire and theft.
3.7 \ Business interruption insurance
The indirect loss from a fire or theft can be greater than the direct loss. If your business premises or files are destroyed, you can lose revenue, but certain expenses must still be met. Such a situation could put a severe strain on working capital and seriously affect the survival of your business.
Business interruption insurance is designed to cover the period between the time of the loss and the return to normal operating conditions. The insurance policy could also include the costs of temporarily renting other premises.
3.8 Personal disability insurance
You could be disabled for a short or long period of time. This insurance pays you a certain monthly amount if you are permanently disabled, or a portion of that amount if you are partially disabled but capable of generating some income.
3.9 Key person insurance
The death of a key person could seriously affect the earning power of your business. For example, if you have an associate, partner, or consultant who is critical to a particularly large project or your business as a whole, life insurance should be considered.
The death of a key person may result in decreased confidence on that part of your existing or potential clients, leading to a loss of future contracts, competitive position, and revenue, and to the expense of finding and/ or training a replacement. The amount and type of insurance you should carry will depend on many factors, as designing an evaluation formula for a key person is difficult.
Proceeds of the key person policy are not subject to income tax generally, but premiums are not a deductible business expense.
3.10 Shareholder’s or partner’s insurance
If it is your intention to have a partner in your coffee bar or a shareholder in your corporation, you may wish to consider shareholder’s or partner’s insurance. Usually this type of insurance is part of a buy-sell agreement that allows for a deceased shareholder’s or partner’s interest to be purchased by the surviving partners or shareholders of the corporation.
In summary, the procedure is that each partner shareholder applies for a life insurance policy on the life of the other. The applicant is the beneficiary and pays the premiums on his or her partner’s life insurance policy. When a partner dies, the funds from the insurance are received tax free by the beneficiary (the partner). These funds are then used to purchase the deceased partner’s share of the business. The surviving partner retains control of the business, and the heirs of the deceased get cash for their interest.
In the absence of a buy-sell agreement funded by life insurance, the death of a partner could cause the immediate dissolution of the partnership in law. Unless there is an explicit agreement to the contrary, the surviving partner’s duty is to liquidate the business, collect all outstanding accounts, pay off all debts, and account as trustee to the personal representative of the deceased partner for the value of the deceased’s interest in the business.
With a corporation, in the absence of a buy-sell agreement, the deceased shareholder’s interest would be considered an asset and would go to the beneficiary outlined in the deceased shareholder’s will, if a will existed. Naturally, the introduction of a new shareholder who owns an interest in the company, especially a majority interest, could have a very traumatic effect on the shareholders and the company’s continued operation.