Is Your Small Business Adequately Insured? Many Owners Don't Know Every small business needs an insurance to protect itself against unprecedented events. However, many small business owners often neglect the importance of having an insurance.
By Hamid Ganji Edited by Micah Zimmerman
Opinions expressed by Entrepreneur contributors are their own.
Operating a small business has always involved financial risk, but in 2023, many observers believe the challenges are greater today than ever. Company owners and decision-makers feel this way for many reasons — from economic uncertainty to more frequent severe weather to increasing cybercrime.
Fortunately, companies can protect themselves by having adequate business insurance. With the right policies and limits in place, an incident that would have resulted in a sizable financial burden may be covered, enabling the organization to move past it without having to pay for a loss or the high costs of legal defense and court-awarded damages.
On the other hand, a company that doesn't have adequate insurance coverage can suffer in multiple ways following an incident that isn't fully covered, including:
- Financial instability
- Reputation damage
- Loss of business opportunities
Depending on the type of work a business does, where it operates, and other factors, it may also face fines and other penalties for operating without required coverages.
Failing to capitalize on affordable coverage
Business insurance policies have tremendous value, considering they can typically provide six-figure coverage or more for as little as hundreds of dollars annually. However, if you ask a handful of business owners if they review their policies annually, you will likely find that very few do. Many companies don't even review their business insurance coverage regularly.
Related: Amid Surging Crime Rates, Make Sure Your Business Is Protected
An array of risk-specific policies
Many business owners don't realize that many insurance policies address different business risks. That "cafeteria plan" approach to coverage is helpful since it allows companies to save money by purchasing only the policies needed to address the risks they face.
For example, a company that doesn't own or lease vehicles for business use doesn't need to buy a commercial auto policy. If the organization later adds a delivery option and purchases a van, the owner can get coverage to protect the asset and address liability arising from its use. And they can do so without overhauling their insurance strategy. The new policy is simply one more in the company's portfolio.
Related: Best Small Business Insurance Of 2023
Standard small business insurance policies
Many types of small business insurance policies exist, mainly when the list includes various niche and specialty coverages. But generally speaking, most companies can be adequately insured by purchasing (and annually reviewing) some or all of seven standard policies:
- Workers' compensation insurance. States generally require companies with employees to have this coverage. It protects workers and their families financially if the employee is hurt, contracts an illness or dies on the job.
- General liability insurance. This policy covers incidents like lawsuits from non-employees over injuries (slip-and-fall accidents, for instance), customer property damage caused by employees and additional business risks listed in the policy.
- Professional liability insurance. This coverage is called errors and omissions insurance in some industries. It protects a business from lawsuits if someone sues it for actual or alleged mistakes in its professional advice or services.
- Commercial auto insurance. Most states require businesses that own or lease vehicles for work purposes to have this coverage. It can pay costs associated with liability and vehicle damage from specified risks.
- Business owners policy (BOP). Also called property & liability insurance, this policy addresses general liability scenarios and damage to company property.
- Cyber insurance. For businesses that handle sensitive information, like credit card data, this coverage protects if someone steals that information and uses it to commit fraud or is likely to commit fraud.
- Umbrella insurance. Liability insurance policies have a limit on what they'll pay for a covered event. If someone sues a company for an amount greater than the underlying liability policy's limit, an umbrella policy can cover the difference up to its limit.
Related: How to Save on Your Business Insurance During a Crisis
An urgent issue that is simple to correct
Most business owners and decision-makers will confess to experiencing a moment of panic when they realize the company doesn't have adequate coverage for a risk it faces. The good news is that they can address any financial vulnerabilities quickly and efficiently.
The convenience of shopping for, purchasing, and using insurance is another reason no business should be without the coverage it needs. Small business owners should think of business insurance as their financial first responder.
Companies often provide informational resources on their websites to educate business owners about insurance. Hopefully, decision-makers are leveraging those resources, and soon, the percentage of businesses regularly reviewing their coverage will rise, and the number that are underinsured and uninsured will fall.
Related: How Businesses Can Leverage Tech for Optimal Business Insurance
