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John Barraza Don't Burn Your Dollar Written by: John Barraza
Issue: May 2010 | NSIDE Business
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Control the cost of your business insurance Don’t Burn Your Dollar

Insurance is one of the biggest expenses that a business is faced with everyday. It is also the one expense that can be controlled and even reduced by effective planning. I hope to give you a few pointers on what you can do to help you and your business deal with this expense.

You must always have a copy of your policy(s) readily accessible. In order to control anything having to deal with your insurance, you must first know what it is that you are insuring and not insuring. There may also be a time when you have a question about your coverage, and if you have your policy on hand you can answer your own question right way. Plus, you will be able to review your policy on your time.

Review, Review, Review

Now that you have reviewed your insurance, you need to make sure that this becomes an ongoing process. This should be done when you originally get the policy to make sure the policy is covering you and your business with no exposure, and at the same time make sure that you are not paying for insurance that is not needed.

So many business owners/managers get a policy and just assume that everything is correct. No one knows their business better than the person who owns it or the person who manages it daily.

Please take the time in reviewing your policy and make sure it is correct. In doing so, you may notice a few things that may have been overlooked. I have seen where a business was paying for insurance on several vehicles that they had not owned in years. The same can be true for health insurance and workman’s comprehensive insurance. Employees are left on policies when they are no longer employed with the company and the business is left with the bill.

If they are still employed, make sure that they are classified correctly for your workman’s comprehensive insurance and general liability. Different jobs come with different classifications that have different premiums. For example, insuring an employee of an insect exterminator who does the actual exterminating will be classified as a bigger risk (higher premium) versus the person who answers the phone in the office.

Your insurance should reflect your business

As your business changes directions, so should your coverage. Some of your coverage may no longer be needed. For example, your day to day operations may change where you now outsource something that was previously done in-house. This may allow you to eliminate certain coverages, which will most likely reduce cost.

Safety Awareness

A safety plan can and will eliminate certain hazards that can become claims. These claims will increase your premiums. A big part of this safety awareness should include safety on the job on how to perform tasks correctly to avoid injury to yourself or others. You can also have training on what to do in certain type of emergency situations. This type of training should be documented on all who attend to make sure all employees are included.

This will help to create the awareness, but it must not stop there. Your employees must be reminded of this daily. Many businesses create this daily awareness by posting how many days they have been without incident in a break room. If you choose, you can add a reward (i.e., company lunch, raffle, safety awards) at the end of a predetermined time so your employees have a vested interest in the plan.

Health Insurance

There has been a lot of talk about health care in the media and what it costs. Many businesses weigh the options on whether they should offer it to their employees. Health care insurance gives businesses an advantage in attracting new employees and retaining them. This advantage unfortunately comes at a cost. As a business owner/manager, you can reduce these costs in a few different ways to make it a win-win for both employee and employer.

First of all, I would recommend setting up your employee benefits on a cafeteria plan. The cafeteria plan will allow your employees to save money on their benefits on a pre-tax basis. Their compensation is reduced for purposes of calculating wages subject to federal and FICA (Social Security & Medicare) taxes.

As for the employer, employee benefits purchased on a pre-tax basis reduce the employer wage base for purposes of calculating payroll taxes. Employers can realize direct bottom-line savings from the reduced employer FICA taxes, FUTA taxes, and disability and workers’ compensation insurance premiums (varies state by state).

As an employer, if you are offering health insurance as an employee benefit, you are required to pay at least 50 percent of this coverage. Some of your employees will only want a very basic coverage, while others with more specific needs may want something better than just a basic coverage.

In this type of situation offer two plans, a basic and a buy-up. The basic will come with a higher deductible and basic coverage at a lower premium compared to the buy-up. The buy-up will come with a lower deductible and more coverage which will cost more than that of the base. The employer’s contribution can be based off the base plan.

For example, if the base plan costs $300 and the buy-up is $500, then the employer only has to pay 50 percent of the base plan which is $150. If the employee chooses the buy-up, the employer is still only responsible for the $150 and not 50 percent of the buy-up.

Although this article speaks a lot about cutting costs, please remember not to cut to the point of exposing you and your business. In the end, you want to maximize your protection at the most competitive price. I would also recommend that you get together with your agent who can advise you on your risks and coverages.

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