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It Safe
By Sandra Mihaloff
Protect yourself and your business with liability insurance
As a dance teacher, you wouldn’t think of teaching or
performing without using the proper equipment, keeping
yourself and your students in shape, or playing appropriate
music. The same holds true for your dance business—you need
many resources to keep it running in top condition. One of the
most important resources is liability insurance.
Liability exposures are all around you, whether you are
teaching in your dance studio, performing at a hall or
theater, hosting or participating in a competition, or
conducting an exhibition. For example, suppose a student’s
mother trips on your steps and fractures her ankle. You could
be sued because your improperly maintained stairs caused her
injury.
Liability insurance protects you if someone claims that your
negligence caused their injury. Most important, it pays to
defend you if you are sued and pays damages if you lose the
lawsuit. Without general liability insurance, you’d have to
pay all legal costs out of your own pocket. Bear in mind that
a lawsuit brought against your business often has consequences
that reach beyond financial considerations. Even a wrongful
lawsuit can damage your reputation and standing in the
community, making it impossible for your business to survive.
Insurance is the least expensive way of protecting your
business.
Liability insurance also protects you if you teach as an
independent contractor. This is called “professional liability
insurance,” and it covers you if a student claims that her
injury was a result of your faulty instruction or technique.
How much is enough?
The ownership structure of your business (corporation,
partnership, sole proprietorship, or LLC) determines the
amount of liability you will have. For example, if your
business is a sole proprietorship, you are personally
responsible for business debts. The amount of coverage you
need depends on the amount of financial risk you might face.
Also, if you rent, your landlord may require you to have a
certain amount of insurance.
Most dance studio owners choose liability insurance in the
amount of $1 million per occurrence and two or three times
that amount in the aggregate. Per-occurrence coverage is the
maximum amount paid on a covered individual claim. Aggregate
coverage is the maximum amount paid on all covered claims
combined, within the policy period. The cost of all this
protection isn’t very high and can save you many thousands of
dollars if someone files a claim against you.
There’s another practical reason to purchase liability
insurance: If your students perform at outside venues, you
will need a certificate of insurance, which you can’t get
unless you have liability insurance. You need this certificate
because even though the performance is being held at a rented
hall, you can still be sued if someone is injured. The
certificate ensures that your liability protection follows you
wherever you go.
What other coverage do you need?
Many studio owners think that liability is their only
exposure, but there are a number of other contingencies for
which insurance is very helpful. What if a fire destroyed your
floor, backdrops, costumes, mirrors, lighting, computers,
phone system, furniture, products for sale, and sound system?
Would you have money readily available to replace these items?
You would if you had property insurance.
Property insurance can protect you at a reasonable cost. One
way to keep the cost even lower is to choose a higher
deductible. Also, be sure you are getting insurance for
replacement cost value (RCV) and not actual cash value (ACV),
which is the depreciated value of your building or its
contents.
Have you ever wondered how to protect your income if your
business had a covered property loss and was forced to close
for a period of time? Coverage called “business income with
extra expense” would take care of you, enabling you to set up
business somewhere else if necessary, make payroll for
employees, and pay your rent and other expenses.
One more type of coverage to consider is called “excess
accident medical.” If students are injured at your school or
during sponsored activities, this insurance will pay their
covered medical expenses. You can think of it as a goodwill
gesture—by paying a student’s medical bills now, you may be
able to avoid a lawsuit later.
All this coverage might sound expensive, but considering the
financial protection you receive, it’s quite a bargain. Your
insurance representative can help you determine the amount of
insurance you need and the type of coverage that is
appropriate for your situation.
Compare limits of liability, deductibles, exclusions, and
other policy terms before making your final decision. These
variables can have a big impact on the price of your insurance
program.
How do you choose an insurance company?
Not all insurance companies are created equal. There are three
important things to look for when choosing a company.
Experience:
Choose a company that has lots of experience insuring dance
schools and studios. As the owner of a dance school, you face
far different risks than owners of other types of businesses.
It’s important that the company you choose fully understands
these risks and offers coverage to protect you.
Financial strength:
Look for a firm that independent insurance analyst A.M. Best
Company rates “A” or above. That rating means that in Best’s
opinion the company is financially strong. What this means to
you is that the company will have money in the bank to pay
your covered claim, whether it occurs this year or many years
from now. Ratings can change quickly, so even if you intend to
stick with an insurance company, ask your agent to check their
rating every year.
Claims handling:
Here, too, experience plays a large role. Choose a company
that has successfully handled many claims involving children.
These types of claims are often very emotional and can be
difficult to handle. Many insurance companies hire
claims-management companies and other third parties to manage
their customers’ claims. Sometimes these companies can’t
properly represent your best interest, so before you buy
insurance, ask who handles your claims.
Beware of insurers who offer coverage at deep discounts. This
can be a signal that coverage is not as complete as it should
be, that there is a corresponding lack of commitment to
customer and claims service, or worse yet, that an insurer may
be susceptible to financial difficulties caused by unexpected
claims.
What if your insurance needs change?
As your studio grows and changes, so will your insurance
needs. You may open another school, add a new program, or buy
new equipment. Keep your insurance agent informed about the
changes you make so that he or she can advise you if you need
new or expanded coverage. It’s a good idea to reevaluate your
insurance needs at least annually to ensure that you have the
proper coverage. That way, it’s easy to keep your dance
business in excellent condition.
Illustration by Samantha Beachell
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