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Business Owners, When Should You Actually File a Claim?

March 28, 2018

Did you know that burglary and theft account for as much as 205 of all small business insurance claims? According to the Insurance Journal, the average loss from theft is only $8,000. By contrast, client slip and fall injuries and lawsuits cost upwards of $20,000.

As a small business owner, restaurant owner or government contractor, it is in your best interest to objectively weigh each potential claim before you file in order to avoid unnecessary insurance premium increases and the potential cancellation of your policy.

What you will learn:

1. Review Your Coverage Summary Before Filing a Claim.

When you experience an accident that calls for an insurance claim, carefully read your policy before filing. Pay special attention to any specific exclusions and any applicable deductibles. If the incident is specifically excluded, filing a claim won’t result in receiving a payout from the insurance company, and the claim will go on your insurance record.

You should also look at your deductible amount. Many types of business insurance policies have deductibles that will subtract from your claim amount. For example, if you have a $5,000 deductible, and your claim is worth $6,000, you would only receive $1,000 for damages and/or repairs.

2. Consider Paying Low-Cost Damages Out-of-Pocket.

Small business owners, restaurant owners and government contractors should know that every claim and even some claim inquiries are entered into the CLUE database, which stands for Comprehensive Loss Underwriting Exchange. The reports are generated by LexisNexis and are available to every insurance agent. Filing too many claims can be a red flag to insurance companies and result in higher premiums and non-renewals.

In order to avoid being flagged as high-risk, you may want to consider handling small expenses out-of-pocket and only filing claims for large losses.

3. Consider Your Potential for Experiencing a Lawsuit

Lawsuits against businesses tend to be extremely costly when compared to other types of potential claims, like robberies, frozen pipes and weather damage. These types of claims also go into the CLUE database. The Insurance Journal estimates that employers have an 11.7 percent risk of being sued by an employee. These lawsuits can cost small businesses between $90,000 and $500,000. Common reasons for lawsuits include not properly documenting incidents that lead to the termination of an employee and not adhering to employment laws. Additional reasons for lawsuits include employee on-the-job injuries and various types of harassment and discrimination.

4. Before You File a Claim, Document Your Losses and Get Estimates.

Documenting your losses and getting replacement and repair estimates can help you determine if you need to file a claim with your insurance company. If your business has experienced a loss due to theft or weather damage, assess the losses and get estimates before calling your agent. For example, if a tree branch falls on your roof during a storm and the damage is less than your deductible or only a few thousand over your deductible, you may want to skip filing the low-cost claim. However, if you need to replace your entire roof or repair extensive water damage that will cost tens of thousands of dollars, then you should definitely get in touch with your agent to start the claims process.

5. Assess Whether the Incident Hurt Someone Else or Damaged Someone Else’s Property.

If the incident hurt someone else or damaged someone else’s property, you should definitely consider filing an insurance claim. These types of incidents may involve slips and falls on your property, trees or objects falling on vehicles or people and defective products or even negligence. In order to protect yourself and your business against considerable financial loss, you are better off going through the process, filing an insurance claim and avoiding any messy legal scenarios. 

To File, or Not to File?

The next time you experience an accident, consider all of your options before immediately filing a claim. Review your insurance policies, deductible amounts and whether or not you can afford to pay for the damages, repairs or replacement costs from your business’ financial accounts.

Rule of thumb, you should file claims for large amounts and skip filing multiple claims for small amounts. If you are not sure if you have the right coverage in place for your home or business, talk to an adviser today and get your questions answered!

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