Better Living LLC is a proposed small business in real estate investment. Better Living wants to start out with investment in apartments and single-family homes. The core objective of the company is to buy properties and rent them out. The company will also invest in old apartment and homes, renovate them, and put them out in the market.
Activities (General Analysis Section)
1. Describe the various risks a small company needs to mitigate.
A small company is exposed to risks of damage by fire, theft, or burglary. If the company has a building, machines, and equipment, they are exposed to such risks. The company inventory is also at risk of fire and special perils. The employees of a company are at risk of work-related injuries. It is also necessary for the company to mitigate liability risks to the public or liability from its products and professional advice. Risks related to business interruption can lead to serious losses, therefore, mitigation is crucial. Risks related to the use of company vehicles are also important risk area to mitigate (Pakroo, 2018).
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2. Describe the types of policies and coverage needed for a typical small business.
Property insurance policies offer coverage on damage to property by fire and perils, floods, riots and strikes, the breakdown of machinery or equipment, leakage, and violence. Theft insurance policy offers coverage for loss of property or assets due to events of theft and burglary. The company is compensated for their losses in the eventuality of the named risks (Pakroo, 2018).
Liability insurance policies are very important especially if the company sells products. Public liability policy covers the company from legal liability to third parties for accidental bodily injury, death or illness (Pakroo, 2018).
A small business may have employees; hence the worker's compensation insurance policy or health insurance is important. Work compensation policy compensates employees for injury, death or illness from work-related accidents. Medical insurance covers medical expenses from illnesses or injuries (Pakroo, 2018).
3. Explain how insurance can mitigate the risks a small company faces, and discuss its limitations.
Insurance is a risk transfer method of mitigating risks. Risk transfer means that the business places the task of mitigating risk on the insurer. In such cases, the insurer will compensate the company for consequences brought by insured risk events. Compensation is on indemnity-basis, that is, the insurer only compensates to place the company back to its financial position before the loss. Insurance is not a profit-making mitigation method (Pakroo, 2018).
Insurance only compensates for the contractual limit that the company and the insurer agreed upon in the insurance contract. For instance, in case of fire, the limit was $1 million dollars, then the insurer will assess the risk and pay the amount in the stated limit. Insurance covers have exclusions, terms and, conditions that must be present or absent for compensation. Exclusions are the risks or events that the insurer does not cover in any particular policy. If the cause of loss is an excluded risk, the company will not receive compensation. Another limitation is that insurance covers can be expensive.
4. Discuss how the policies can be obtained.
The company can use an agent of the insurance company or visit the insurance company directly. The insurer will offer advice on the most suitable cover for the risk that the company wants to mitigate. The company can then make a decision on the cover they need and enter into a contract with the company. Before the policy comes to effect, there are terms and conditions that the company has to meet like filling in a proposal form or provide necessary documents. When the initial stages are done, the insurer will offer the quotation and the company makes payment. After payment, the insurer prepares the policy document that serves as the contract. The policy is now in effect when both parties declare that the policy document is as per agreement.
Activities (Company-Specific Section)
5. Present an insurance coverage plan in writing (not an insurance quote/certificate) for your small business. What coverage is needed, and how much will each plan cost?
Better Living will have so many properties for rent or sale. These homes are exposed to damage by fire and other perils like lightning, explosion, and earthquake. The buildings can also be damaged by floods and storms, water spillage, riots, and strike. The company can do an in-depth analysis of its risk acceptance levels to determine what risks require insurance coverage. It is advisable for the company to take up property insurance that covers most of these risks. On average, property insurance costs $1,500 per year (Value Penguin Inc., 2018). However, this may increase depending on the value of the buildings.
Better Living should also take up insurance on Workers Compensation especially for those working on property renovation. The company may incur about $100 on this policy depending on the number of employees they will have (Insureon, 2018). The company can also take up health insurance for its employees. Health insurance cost is dependent on age, family members, and limit of cover (Well-Being, 2011). Health insurance covers the medical costs of illness or accidents whether as an inpatient or outpatient. The coverage can also include surgical costs, medical check-ups, maternity costs, and cancer treatment costs (International Insurance, 2018).
Car insurance is also important if the company will have its own cars. The company should budget for an annual average of $1,500 for each vehicle (Value Penuin Inc., 2018). Car insurance covers damage or loss of vehicle and death or injury of third parties like pedestrians. The cover includes costs of repair to the car and compensation in case of loss.
References
Insureon. (2018). How Much Does Workers' Compensation Insurance Cost? Retrieved from Insureon: https://www.insureon.com/small-business-insurance/workers-compensation/cost
International Insurance. (2018). Cost of Health Insurance and Care in the USA . Retrieved from International Insurance website: https://www.internationalinsurance.com/articles/how-much-insurance-do-i-need.php
Pakroo, P. (2018). The Small Business Start-Up Kit: A Step-by-Step Legal Guide. Nolo.
Value Penguin Inc. (2018). Average Cost of Homeowners Insurance (2018) . Retrieved from ValuePenguin: https://www.valuepenguin.com/average-cost-of-homeowners-insurance#nogo
Value Penuin Inc. (2018). Average Cost of Insurance: Car, Home, Renters, Health, and Pet (2018) . Retrieved from ValuePenguin: https://www.valuepenguin.com/average-cost-of-insurance
Well-Being. (2011, February 22). Health Insurance Coverage Varies Widely by Age and Income . Retrieved from Gallup Website: https://news.gallup.com/poll/126143/Health-Insurance-Coverage-Varies-Widely-Age-Income.aspx
