Advocating for Your Underinsured Small Business

Overcome the challenges that can easily leave small businesses under-insured.
Recent research shows that small businesses tend to be undeserved when it comes to insurance. Insurance can be a challenge for small business owners who aren’t familiar with the complex legal landscape. Determining what coverage is needed and at what level is often a guessing game, which can leave small businesses either underinsured or overpaying. 
When shopping for insurance policies, small business owners should write down a list of concerns, and do their own research in addition to speaking with an agent. In order to determine which policies you need, you’ll also need to understand the risks your business faces. Questions to ask yourself during the process include:
  • What risks are common in my industry?
  • Do we deal directly with clients and/or the public?
  • Do we sell physical products or services?
  • Do we handle or interact with property that belongs to a third party?
  • Does this business involve transporting people, equipment or goods?
  • Do we store sensitive or confidential customer data?
It’s also important to research insurance you might be required to purchase. For example, most states require businesses to carry workers’ compensation once they have a certain number of employees. Additionally, lease agreements often require a minimum level of commercial property coverage, and for restaurants may require they carry liquor liability insurance as well. 
So when should a small business owner commence shopping for insurance? There are a number of milestones that indicate it’s time to review your policies:


When you start your business, you need to find the right coverage. Even if you’re working out of a home office, it’s likely that you have valuable assets to protect like a computer or tools; and there are plenty of risks associated with simply having customers. A good place to start is a Business Owner’s Policy, or BOP. A BOP combines property insurance, business liability insurance and business interruption insurance into a single package.

Finding office, storage or retail space

When you lease a space, it’s likely that your landlord will require proof of certain insurance policies. Make sure you have these in place before attempting to move in. Additionally, you’ll want to review your property insurance policy to ensure coverage limits are adequate. These may be specified by per-occurrence and total limits (with total indicating annual).

Hiring employees

If you have employees, you may be required to have workers’ compensation, unemployment and, potentially, disability insurance. You’ll also want to consider offering benefits like health insurance to your employees.

Launching a new product or service

When you launch a new product, while you may not need a new line of coverage, you should have a check-in with your insurer or broker, as your policy is designed to cover a particular set of business practices. If you provide a service, particularly if it relates to finances or legal considerations, you’ll want to look into errors and omissions (E&O) insurance. Frequently referred to as professional liability insurance or professional negligence coverage, E&O policies protect against unhappy customers that feel they’ve faced financial loss or injury resulting from your services.

Raising money

When you start to increase the number of shareholders in your business, you may want to have directors and officers (D&O) insurance to protect your board and executives in the case of a lawsuit against your business. In fact, D&O insurance is often asked for when recruiting top board members and executives.
Once you've reviewed your risks and begun looking for coverage, there are a couple items to check within a policy to make sure it's the right fit for your business. First, if you're getting coverage in order to fulfill a contractual requirement, confirm that the coverage limits meet the terms you've been given, as changing these will impact your premium. In addition, check what scenarios would not be covered within a policy and whether these are applicable to your business, which would indicate a need for additional coverage or a different type of policy. For example, earthquakes and floods are commonly excluded scenarios from a commercial property policy, so if your business is located in a region in which these are common events, you would need to ask about additional coverage or a rider.
Purchasing and managing your insurance policies doesn’t have to be a nightmare. Come prepared with the right questions, use digital tools to compare policy information and make sure you have an easy way of storing certificates digitally. Having your policies at your fingertips means you won’t be left scrambling when you need them.
Photo credit: Shutterstock / leungchopan
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