Critical Insurance Coverage and Considerations for Today’s Laundry Owners
[This is the first in an ongoing series of articles covering business insurance issues for vended laundry owners.]
Insurance. Ugh! Who really wants to think about it? After all, nothing “really bad” has happened at your laundromat. So, why should you worry about insurance?
Of course, I’m kidding.
Clearly, as we all should know, insurance is one of the most important things vended laundry owners can do to ensure the long-term viability of their businesses. In order to protect your laundry’s assets and investments, the proper insurance and coverages are critical.
With that said, here are some important considerations for ensuring that you have the right insurance coverage for your laundry operation:
Business Personal Property Coverage
- This is one of the most important coverages for a self-service laundry owner. This is coverage is for your equipment and contents within the store. For this coverage, it is essential that you include everything beyond the main equipment – such as chairs, couches, televisions, computers, etc. – in case there is a total loss.
- One of the key considerations is to value equipment and other items at replacement cost, which is considered items that are “of like kind or quality.” Even if the equipment is depreciated, you will still want coverage for that equipment. One of the most common mistakes I see with business personal property is valuing it incorrectly.
- Be aware that some policies have coinsurance, which may require that you pay for a portion of the loss if the equipment is not valued correctly.
- Business personal property coverage is so important because the value of all of the machines in one location can range anywhere from under $10,000 to more than $1 million. This can be one of the largest investments for a laundry owner, so it is key to have the correct value at replacement cost.
Building Coverage
- Laundry owners who own the property will need to make sure they have the proper value for building coverage. Depending on the carrier, some will have coinsurance. Coinsurance is a penalty if you are not insuring your building up to value – and you will have to pay a portion of the loss. For example, if the building value is $1 million and there is an 80 percent coinsurance, the minimum value you need to be insured for is $800,000 – or else coinsurance will go into effect. When there is a loss, the insurance carrier will determine the value of the building.
Leasehold Improvement Coverage
- Leasehold improvement coverage is one of the other important property coverages. This refers to enhancements paid for by a tenant to a leased space.
- Leasehold improvements is sometimes a forgotten coverage, but it is important to include on your policy, especially if you have invested a lot of money to improve the laundromat or make renovations. Many store owners will do some sort of buildout either when buying a new store or to an existing laundry they already have. In such cases, let your insurance agent know you need this coverage to be added.
Business Income Coverage
- Business income coverage is also another key coverage for laundry owners. This is coverage to protect you in the event you cannot operate the laundromat for a certain period of time. It will supplement your income to cover that time period, subject to limits and deductibles.
- One thing to note is that not all carriers have the same overage for business income. Some carriers will have Actual Loss Sustained (ALS) for 12 months. There is no limit here, but you will have to prove how much, on average, you make per month. Other carriers will have a certain limit and it can be for 1/6 per month. For instance, if there is a limit of $100,000 of business income overage for 1/6 monthly, the most you will get per month is $16,667.
- An example would be if there is a fire at your vended laundry and you cannot operate the store for a certain period of time. In that case, business income coverage will help you supplement the loss of income.
Liability Coverage
- Liability coverage is another important aspect to a laundry owner’s policy, as this will cover you when a lawsuit is brought against you for property damage or bodily injury.
- Slip, trips and falls are one of the most common claims that occur within a self-service laundry, and liability coverage will protect you in these types of events.
- A key consideration is to be sure you have adequate limits. We see the most common limits at $1 million per occurrence and $2 million general aggregate. There are usually options to increase to $2 million per occurrence and $4 million general aggregate. There also is an option to add an umbrella.
- For example, the average cost of a slip, trip and fall claim is $20,000, according to claims data from The Hartford. And this can easily surpass $75,000 if a customer files a lawsuit.
Workers’ Compensation
- Workers’ compensation coverage is for your employees, if they were to get injured at work. It will provide payments for medical and lost wages subject to each state’s limits.
- A key consideration of workers’ compensation coverage is that it will never be included in the business owner’s policy, so a laundry owner will always need a separate policy for this type of coverage.
- An owner will have to decide if he or she wants to be included or excluded on the workers’ compensation policies. Many owners choose to exclude themselves (if their state allows), as it will help them save money or else they wouldn’t want to file a claim again their business. One thing you will want to double-check is whether or not your personal policy excludes workplace injuries. If it does, you may want to consider adding yourself to the policy or purchasing a rider to include workplace injuries.
- A recent development in workers’ compensation is that more insurance companies have started payroll billing. Premium payments can be linked directly to your payroll company, which will make it more of “pay as you go” workers’ compensation. This can limit having to pay more for audits, will eliminate a large down payment depending on the company’s guidelines, and will help improve cash flow.
These are just some of the major coverages for vended laundry owners to consider in order to best protect their assets. There are other coverages they should consider adding as well; however, we typically recommend that store operators consult with their insurance agent to identify the ideal coverage plan for their specific businesses.
In upcoming articles, I will go more in depth on such key topics as risk management and the benefits of running an attended laundry.
