Do You Have the Right Business Insurance?

Whether you are a seasoned operator or new to vending, the vending business carries a certain amount of liability that operators need to protect themselves against. Operators can be properly insured without overspending if they are reasonably informed about what coverages they need.

First and foremost, operators must realize that they cannot depend on personal auto and homeowner's insurance for their business needs. An operator who assumes this is leaving himself open to a major loss.

Operators will need to consult with an insurance professional in determining the amount of coverage they need to cover their business assets.

Personal auto and homeowner's insurance are highly automated insurance products that can be compared fairly easily, are relatively the same in coverage design, and only require a couple dozen answers to get them done.

Business insurance, regrettably, is more complicated. Commercial insurance requires a fairly large amount of underwriting information, and may provide vast variations on what is covered, limited or excluded.

Insurance and risk management

The purpose of insurance is to protect assets, but let's step back from that for a moment. Insurance is a contract under which one undertakes to pay or indemnify another for loss from certain specified contingencies or perils.

On the other hand, risk management is the practice of protecting an organization from financial loss by identifying, analyzing and controlling risk at the lowest possible cost.

Fundamentally, there are only four ways to manage risk: transfer it, assume it, reduce it or eliminate it. It has often been said that you transfer your risk of loss to an insurance company, but that really is not true -- you transfer the known loss, the premium, for an unknown loss and hopefully the financial burden of the loss.

So what coverages do you need to protect yourself and your assets? You can break down the answer into seven types of insurance which equate directly to the type of exposure to loss. Those seven coverages are listed below. We'll address most of them, one at a time.

First concern: disability insurance

The most significant concern you must address first is disability insurance. What will you and your family do if you are injured, sick or gone?

This is where risk management comes into play because you need a written disability contingency plan. It doesn't have to be fancy, but you should go through the thought process and make a plan and get insurance coverage for short-term and long-term disability.

Have a written plan for how your business operations will continue if you are out of the picture for a short period of time. You should also plan for how you will exit the business in the event of a catastrophe.

If you have a partner or partners, it is advisable to have a "buy/sell agreement" funded with life insurance. If one of the partners dies or becomes disabled and the business cannot continue, this policy will protect your investment.

Property and liability coverage may be purchased with a simple "business owner's policy." This is a combination of property and liability coverage with a basket of miscellaneous coverages thrown in.

At the lowest entry point into commercial insurance are some fairly standardized BOPs. Unfortunately, most insurance companies that offer these standardized BOP policies do not allow vending operations in their underwriting guidelines.

Determine what the "replacement cost" values are for business personal property and inventory.

I am often asked about machine coverage. The loss of all your machines at once would present a significant financial hardship, but that possibility is quite remote.

As we apply risk management techniques to the loss exposure of vending machines, it may be the best approach to "manage the risk" rather than transferring the risk of financial loss to your insurance company.

Treat vandalism and damage as a cost of doing business as opposed to trading premium dollars to and claims dollars from your insurance company.