Money Matters

Insurance — Do You Know What you Need?

Of the many decisions salon owners are faced with every day, one that is often overlooked or put off is the issue of insurance. Worker’s comp, disability, liability, life, and medical are just the beginning. You name it, it’s out there. So how does a salon remain protected while staying above the bottom line?

Opening a business brings great joy, lots of work, and hope for the future. No one wants to think about the big, ugly, disastrous things that can happen. A client could slip and fall. You could pull your back out reaching for something. Or worse, your receptionist could become involved in an accident on the way to the office supply store — on company time.

Salon owners and techs can put everything into building and marketing their business and lose it all because they aren’t properly protected.

“Start off by understanding each state’s requirements and guidelines,” suggests Susan Cohen, an insurance agent in Florida. “Then cover as much as possible — one incident could wipe you out forever.” Sound scary? Let’s take a look at what’s most important to purchase in the realm of insurance, plus a few extras for added protection.

What’s Required insurance protects the insured from losing money when he or she is legally responsible for someone’s injuries or death or damage to others’ property.

General liability/property liability

Basically, if there is an accident in your salon or your booth rental space, this is the insurance that will be backing you up. The policy may pay for your defense fees, even if the allegations are groundless. In addition, the policy will pay any judgment up to the policy limit of coverage.

General liability/property liability also covers all of the contents of your property. All policies have different underwriting clauses and requirements, so not all buildings or leased spaces will receive the same protection. Insurance companies have strict guidelines on who they accept and what they will cover. A salon in a newer building, not located in a flood zone, with newer electrical and block construction will have a very different plan and premium cost than someone in a downtown waterfront building with frame construction, built in the 1920s (assuming they can even get coverage). Some underwriters won’t even offer flood, wind, or named-storm damage. The insurance companies are in business to serve, but they also want to make a profit.

Most companies offer a business-owner’s policy that covers $1 million per occurrence. So in other words, if someone slipped and fell, and you had a $1 million coverage amount per occurrence, that would need to cover attorney’s fees and everything included in judgment.

When businesses are operating at total values of more than $1 million, a commercial umbrella policy should be purchased. These policies may protect businesses if a lawsuit goes above the limits of its commercial/general liability policy. Most package policies provide a liability insurance limit of $1 million for any one loss and $2 million in any one year. For many businesses, this limit is inadequate for real economic security. As a result, additional layers of protection in million-dollar increments are readily available in an umbrella policy.

Owners also have the option of adding a $2 million aggregate to a policy. This will give you not only the per-occurrence amount, but also an additional amount to cover incidentals and fees.

Workers’ compensation insurance is a must for salon owners. By law, most employers are required to provide coverage for lost wages and medical bills incurred as a result of on-the-job accidents or illnesses. For many businesses, this coverage is the largest part of its insurance expense. In Florida, if you have three or more employees, you must carry Workers’ Comp. However, rates are based on payroll, so owners can save money by exempting themselves.

Workers’ compensation insurance protects employers from claims resulting from injuries to employees while working. It protects your business from these lawsuits but also provides employees with compensation for on-the-job injuries.

Owners should keep in mind, too, that employees aren’t just “on-the-job” when in the salon or spa. For instance, if you send the receptionist out to buy more nail polish remover at the local beauty supply store and she’s involved in a car accident, the persons affected could sue your business because that employee was on a business errand.

Even though you may not be required to carry Workers’ Comp for less than three employees, it doesn’t mean you’re still not liable.

The Extras

It’s also smart for owners and booth renters to look into adding business interruption insurance to a policy. In a case of severe damage, it could take weeks, if not months, to be fully operational again. What could that cost in lost revenue? Business interruption insurance may keep your business running in the event of a catastrophe (for instance, a fire, hurricane, or tornado) or in the case of vandalism or equipment damage. It often covers lost net income and ongoing expenses (like mortgage payments and salaries), which helps make sure your business doesn’t have to put away the polish for good.

Property insurance covers financial loss when specified parts of the property have been damaged or stolen. This applies to property that is owned, possessed, or held by the policy holder.

When purchasing property insurance, you also want to note whether you want replacement cost (what it will cost to replace the item) or cash value (what the lost item is worth now) for your property.

“Everything depreciates,” says Doug Leavy, owner of Strategic Insurance in Clearwater, Fla. “A pedicure chair purchased for $5,000 six years ago might now be worth only $500, but a new one might now cost $7,000.” Think about what it would cost to replace an entire salon at today’s value after 10 years of use! The difference between these two types of policies is sometimes only a few hundred dollars a year but can save you thousands if you have to use it.

Product liability insurance protects you in case a product you manufacture, sell, handle, or distribute causes harm to someone or their property. (As opposed to property liability insurance that covers replacing or repairing your property if it’s damaged.) This type of insurance is recommended for businesses that manufacture a product or use products in their services. Everyone has seen news stories about reactions to beauty products — and people who sue for any reason they can find.

Most business owner’s policies include limited product liability coverage. If, for some reason, you do not have this coverage through an owner’s policy, you may need to buy it separately. Similarly, if your product presents a higher-than-average risk of injury (for example, it contains a hazardous material), you may need to purchase additional coverage. For an added layer of protection, have each client sign a waiver at the beginning of each new service and apply products in a test patch.

Unfortunately, we’ve all been known to make recommendations or give advice to our clients.

Professional liability insurance provides coverage in the event that you, as a service provider, misrepresent something or give inaccurate advice, which causes some type of harm to the person. An example would be recommending a lotion from the grocery store that causes the client to have a reaction; because it’s not a product covered, or service performed by you, your product liability policy will not cover it, but if you have professional liability, you would likely be covered from financial losses in a lawsuit.

To Your Health!

Medical insurance may cover as little or as much as needed: from emergency care to pharmaceutical products to regular check-ups, but these days very few salons offer medical coverage to employees, simply because of the high premiums.

Getting insurance for just one or two people is often not cost-effective, but salons, booth renters, and self-employed nail techs, may be able to get lower-cost insurance through professional associations or group plans. Local chambers of commerce often offer group plans for members as well. Owners can also offer contributions to HSAs (Health Savings Accounts) or provide medical coverage to “key employees” (i.e., management) as a way to compete in the job market.

Nowadays, life insurance seems to be a must. In the event of an untimely death, this provides a pay-out to your beneficiaries and/or your business partners. Owners and self-employed techs should make sure their policies will cover the total value of their business. You may want to look into a “return of premium policy.” That way monies paid in premiums are returned at the end of the policy.

One huge area often overlooked in our business is disability insurance. This type of insurance covers a person who is temporarily or permanently disabled and unable to work. If you were unable to perform your job for any length of time or permanently, how would that affect you? We all know of back, neck, and hand problems in this industry, but what about the unforeseen, like a car accident or a fall? A typical disability policy will pay 60% net of your income. The length of time of the payout is determined by the policy. Again, look at a return of premium policy. The cost is higher, but if there’s no claim, you recover your premiums. Of course, salons can become insurance-poor if you’re not careful. Take a look at what’s required, what’s not, and judge how to keep your business and yourself fully protected. Do your due diligence, shop around, and find an agent fully committed to serving your needs.

VALUE YOUR CONTENTS

Make sure when looking for a policy you are clear what the values are of the contents of your salon. Take photos and complete a walk-through video each time you make any improvements or buy new equipment. That way in the event of a disaster you can maximize your payout. Always contact your insurance agent when making improvements so your policy can be adjusted to offer correct coverage.

WHERE TO BUY

These insurance companies specialize in the beauty industry:

- Ultimate Image Insurance Services www.ultimateimageinsurance.com, (877) 655-0123 (California and Texas)

- Bell Anderson www.bell-anderson.com, (800) 442-1281

- Capitol Indemnity Corporation www.captrans.com, (800) 475-4450

- The Hartford www.thehartford.com, (860) 547-5000

- Insurtec www.dayspainsurance.com, (800) 606-0621

- Marine Agency Corporation www.marineagency.com, (800) 763-4775

- Palomar Insurance Corporation www.palomarins.com, (800) 489-0105

- Zurich Insurance www.zurichna.com, (800) 382-2150

 

Keywords:   business tools     consultants     finance     insurance  



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