INSURANCE FOR CALIFORNIA LAUNDROMATS
Most Laundromat owners know they should have some kind of insurance. Do you know how much and what type of coverage you should purchase? A difficult part of the ownership of any business is making complex decisions in various arenas of the business world. The following should be of some help. For starters, a minimum of two types of insurance coverage should be included in the policies of Laundromat owners.
YOUR FIRST IMPORTANT INSURANCE COVERAGE
The first type is called "property" or "contents" insurance. This insurance is purchased to
protect against loss or damage to your Laundromat and equipment. Many lenders require
this insurance and you list their name on the policy. This is called a "Lender's Loss Payable
Clause" and provides your lender with the proceeds of the policy, up to the amount owing
on your loan, should a loss to the Laundromat occur. There is no fee or cost to name a
lender on the policy. The most significant losses or claims in this area of insurance involve
fire and vandalism. The major danger with fire loss is the Laundromat will burn totally to
the ground. In the majority of cases your landlord will not allow you to rebuild. Most
leases permit the landlord to cancel your lease if the building is damaged in a fire with 25%
damage or more is common. When your landlord discovers he has to pay for the majority
of the fixtures including gas lines, sewer lines, water lines, electrical boxes, water heater,
swamp coolers and walls, he often decides he would rather have a new tenant that won't
cost him his own insurance money. Many Laundromat owners fail to realize that although
they paid for creating the Laundromat and installing the equipment they cannot remove it at the expiration of the lease. Only the equipment that can be unplugged belongs to you. Therefore for insurance purposes the insurable interest belongs to the landlord and there is no benefit in having more insurance than you can collect. Of course, you should have enough insurance to pay off your existing loans and to protect against a loss of the money you've invested. Normally, you should insure your Laundromat for the purchase price
plus any new equipment you have installed.
Vandalism coverage is a part of your "property" coverage and is another common type of claim, although troublesome, it will seldom put an owner out of business or be the cause of a major claim. Theft of your washers and dryers is rarely seen. It would be a notable feat to have someone enter your Laundromat and disconnect, unbolt and remove your washers and dryers. This portion of "property" coverage is in my opinion optional unless required by your lender.
YOUR SECOND IMPORTANT INSURANCE COVERAGE
The second type of insurance you should purchase is called "liability" insurance. This insurance is purchased to protect against claims resulting from injury, accidents, or events determined to be the fault of the Laundromat owner. Landlords will frequently
request in a lease that you name them as "Additional Insured." This addition to the policy requires a charge to the Laundromat owner, since the possibility could arise where separate attorneys need to be hired for both the Laundromat owner and the landlord.
When you review your lease to determine if the landlord requires his name to be
added to the policy, read the section of the lease on the amount of liability insurance
he requires you to carry.
You may be paying for overlapping coverage if you are paying for the landlord's build-
ing insurance policy through your common area maintenance fees. If this is your
situation, you could ask your landlord if you could lower
your level of liability insur-
ance to save money on your premiums.
Too much insurance is a waste of your money, while too little can be tragic. Only you
can make the ultimate decision on how much coverage to carry on your business, but
you might be wise to have someone knowledgeable in the
Laundromat business on
your side as your insurance agent. Too much insurance is a waste of your money,
while too little can be tragic. Only you can make the ultimate decision on how much
coverage to carry on your business, but you might be wise to have someone know-
ledgeable in the Laundromat business on your side as your insurance agent.
DEDUCTIBLES ON YOUR INSURANCE
You buy insurance with the hope of never needing it. Insurance companies sell it with the hope you will never need it. It is important to realize that insurance companies do not sell to bad risks or unlucky operators. If you have three claims in three years regardless of the fault or even if the insurance company did not pay out any money on the claim you become almost uninsurable. I recommend you never file a claim for a minor loss and therefore take the savings and request a deductible of at least $1,000.00.
Insurance companies give a discount for a "loss free history" and you will lose this discount for three to five years after filing a claim. Assuming a 10% discount, and a policy cost of $2,000.00, you could lose a discount worth $1,000, and still become classified as a "high risk" if you have to file another claim for a loss in the next three years. The end result could be a non-renewal letter in the following year or an increase in your premium if you are able to be insured by another company.
REPUTATION OF THE INSURANCE AGENT
Select an insurance agent that is knowledgeable in the Laundromat industry. You can look up the length of time the agent has been licensed and if he has ever been disciplined by going to the Department of Insurance website and entering his name.
Remember, you buy insurance for a rainy day and when it starts to pour you want someone who not only owns an umbrella but knows how to open it. Use common sense and ask questions. A good agent will encourage you to read your lease, especially the insurance requirements and will be able to answer your questions.
FREQUENTLY ASKED QUESTIONS
One of the most common questions is "should I have Actual Cash Value or Replacement Cost insurance coverage in my insurance policy." If you're buying insurance for your house, the correct answer is replacement cost, but in most southern California Laundromats the owner of the business does not own the building. A replacement cost insurance policy will not pay more than the face value of the policy regardless of the actual cost to replace. In addition, if you experience a total loss for example: a fire burns your store to the ground, a replacement cost policy would pay when you replace or buy another store. As a tenant you probably will not be able to "replace" your store since the
majority of leases contain a provision allowing the Landlord to cancel your lease if you have 25% or more damage to your premises. I prefer to receive a cash settlement that is not dependant on my ability to continue my business so I see the merit in the argument that only owners who own their own buildings purchase replacement cost insurance.
A second question asked is to explain an "admitted insurance company." This is related to your protection and the potential insolvency of the insurance company. A company admitted to conduct business in California operates under the rules and laws of California (including policy provisions and rates) and the policyholders are protected under the California Insurance Guaranty Association. CIGA provides benefits like the FDIC does to bank deposits. I recommend only using California admitted insurance companies.
A third question relates to the annual report produced by the Alfred M. Best Company and used as a measurement in the insurance business to calculate an insurance company's ability to satisfy policyholder's needs. The Best's Ratings range from A+ (superior) to NA-10 (state supervision-insolvency). I suggest you select only those insurance companies with a B+ and higher rating. A.M. Best also rates insurance companies based on financial size. This is important if you think a larger size company will survive better and have the ability to pay your claim at the time of a catastrophic loss. These categories range from Class I to Class XV.
SELECT, COMPARE AND VERIFY
If you have additional questions, please telephone or email me. I can only sell to those Laundromat owners who have their stores in California, but I will answer questions for everyone. I will make it easy to compare and verify that you've got the agent you need, the coverage you want, and the price you can afford. Changing rates and your additional experience make it worthwhile to compare prices every few years. It's fast and easy with our online application. If you do fill out an application, I will try to contact you with your quote within three business days.