The types of insurance you will need will vary with your risks.The following overview of insurance coverage is provided to make you aware of what exists and the types of insurance that might be appropriate. If you already have coverage (life insurance, car insurance, etc.), meet with your present agents to discuss your plans for your new firm. If they have been trustworthy to date with your personal insurance needs, they should be able to help you with your simple, start-up business insurance needs. Remember, after you conduct your research, only you can make the final decision on which insurance to select and purchase. Don’t feel pressured by your agent. Be confident that the deci- sion you are making is a valid one, and that the insurance is not overpriced, is fair, and meets your coverage needs. Should something happen, this insurance should “make you whole,” not reward you with a multiple of times your former value.
General Liability
A general liability policy covers losses due to bodily injury or damage to the property of others; all emergency, medical, and surgical expenses incurred from accidents; expenses to cover investigations; and your defense, settlement, and trial costs. The policy covers negligence causing injury to clients, employ- ees, and the general public. It is normally written up as a comprehensive liability policy. This is necessary to obtain as close to day one of your start-up as possible.
Completed Operations Liability
This policy offers protection against a lawsuit by a client who used your services and as a result sustained bodily injury or property damage.
Professional Liability (Errors and Omissions Liability)
This coverage protects you and other design professionals on your consulting team against litigation arising from losses incurred by your clients as a result of a design error or omission and negligence. Make sure your broker shops this coverage. Premiums are based on your annual revenue volume and the type of projects that you design. If you are a start-up, your coverage will be based upon your projected revenue and project types. That is why it is impor- tant to not only know yourself, but also have vision to predict what projects you will design and the resultant estimated fees. You will document these ideas in your business and marketing plans.
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 personal car for business purposes, exclusively or occasionally, it is important that you have your premium cover business use. Problems can arise if you have an accident and it is discovered that your car was indeed used for business pur- poses. In America,“deep pockets” mentality prevails. Should you have an acci- dent with a company vehicle, the injured always go after the business as well as the driver personally, because most businesses have a higher net worth and value than an individual. For their injured clients, attorneys look everywhere for sources of monetary awards.
Fire, Flood, and Theft Liability
If you operate your firm out of your home, you probably have fire and theft insurance. If you start your firm in an office outside your home, it is important to get coverage. Make sure that your fire coverage also covers your documents.
Attempting to replace stolen or burned drawings or computer files is nearly impossible. Always keep a set of computer disks of your financial, word pro- cessing, and CADD files off-site, away from your office. Backup your data everyday. Better safe than sorry.
Overhead Expense Insurance
This insurance covers the costs of fixed business expenses or overhead during your absence as a result of an illness or accident. As a start-up, it may be diffi- cult or expensive to obtain coverage.
Personal Disability Insurance
There is a remote chance that you could become disabled for a short or long period of time.This insurance pays a certain monthly amount if you are per- manently disabled, or a portion of that amount if you are partially disabled.
There are short-term and long-term policies available. Check with your bro- ker about your coverage options and premiums.
Key Person Insurance
Your death or that of your partner or associate could seriously affect the earn- ing power of your firm. If the key person dies, your existing clients may lose confidence, leading to the loss of future commissions, erosion of competitive position, loss of revenue, and the added expense of finding and/or training a replacement. Proceeds of the key person policy, with the firm as beneficiary, are generally not subject to income taxes. However, premiums are not a deductible business expense. These funds could help you get through a diffi- cult time of continuing your firm’s growth without your partner.
Partners or Shareholders Insurance
Insurance for partners or major shareholders in a corporation is normally part of a buy-sell agreement, which allows surviving partners or shareholders to purchase the deceased’s interest in the company. 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. In the case of a corporation, without a buy-sell agreement the deceased shareholder’s interest is considered an asset and goes to a beneficiary outlined in the deceased’s will (if a will exists) or to the state. Most states have certain quotas requiring that designers make up the majority of stockholders in a design corporation. This could prohibit an unlicensed spouse from commanding the firm. However, why take the chance and have to deal with the consequences later? You should insure your partners for at least the value of their stock in the company. You don’t want to get caught in a legal battle with your former partner’s spouse and/or family in the firm’s valuation, let alone have to pay for their deceased spouse/parent’s value.
Business Loan Insurance
In many cases, your bank will require you to have insurance coverage for the outstanding amount of your loan and will incorporate the premium payments into the loan payment. In the event of your untimely death, the outstanding balance of your loan will be paid off.
Term Life Insurance
Term life insures a person for a specified time period and then terminates.
The most common period is five years. If the insured dies within the time period, the face value of the policy is paid to the beneficiaries. Since term life insurance does not have a cash or loan value, it is significantly less expen- sive than whole life insurance.
Medical Insurance
It is important to have sufficient medical coverage for your needs. Some designers continue the coverage provided by their former employer (check your state laws on this coverage because they vary from state to state) or, if they have a working spouse, obtain coverage on the spouse’s employer’s plan.
Usually, health insurance is prohibitively expensive for an individual. One option is to contact your local or state AIA chapter to see if there is a group plan for designers in the region. Other trade associations may offer medical insurance to their members. Group rates are substantially less than individual
rates because of the size of the group and its buying power. However, some groups require you to have four or more employees to join. Policies offered by insurance companies vary, but medical and dental plans are available for small groups. Some medical plans offer copay coverage for prescriptions, office visits, etc. Medical insurance policies are very complex. Your premiums are based on the risk value of your occupation, the amount of deductible you are willing to pay, the length of coverage during an illness, the amount of copay, and your age. Single person coverage is not inexpensive, while family cover- age can be very expensive. Family coverage for children usually ends once they stop being full-time students. State laws change from year to year about medical insurance coverage. Speak with your broker.This coverage will be as expensive or more expensive than your professional liability insurance premi- um in your early years. Premiums can also rise at amazing rates in given years.
Having medical coverage will be an attraction to prospective employees in your firm’s future. When in doubt, ask your colleagues how they insure their firm’s employees.
Workers’ Compensation Insurance
Workers’ comp requirements vary from state to state. However, when you hire employees, you will be required by your state law to provide some coverage.
Usually you can obtain coverage from an independent agent as well as from the state in which you practice. This varies from state to state. Fortunately, designers are considered to be in a low-risk profession and therefore have lower-than-average rates.