Business insurance protects against unexpected risks, and certain policies may be required for leases, contracts, to obtain a business loan, or to maintain a professional license. It can also help insulate your business from a financial loss, such as a fire or an expensive lawsuit. Just as any business periodically reviews its budget and business practices, an annual review of your business insurance is equally important.
Inadequate insurance coverage can leave small business owners with financial liabilities from any claim that exceeds their insurance limit, which leaves them at risk of an expensive lawsuit that could put them out of business. It’s also important to look for any coverage gaps or policy exclusions that you might be unaware of.
Adapting to Business Changes
Consider how much your business has changed in recent years. You may have expanded your operations, increased revenue, bought new equipment, made personnel changes, or launched new product lines. You may have changed your business structure, such as bringing on a new partner.
How long have you had each of your insurance policies? Have you altered your coverage to reflect changes in your business? Are there new business risks that you need to insure against? Just as your business must adapt to the changing needs of the marketplace, your insurance coverage may need adjusting as well. It’s important to make sure you have the coverage you need, and an insurance review could also be a way to save money if you identify any redundant or outdated coverage.
Staying Compliant
In many cases, there are legal and contractual reasons why you need certain business insurance policies. Commercial landlords typically require their tenants to have commercial property insurance to sign a lease. The landlord’s insurance will cover the building itself, but not your business property.
Professional Licensing Requirements
You might also need insurance to maintain a professional license, such as those in the fields of medicine, law, accounting, architecture, and real estate, to name a few. Professional liability insurance, also known as errors and omissions insurance (E&O) and medical malpractice insurance, covers your practice against lawsuits alleging a breach of contract, professional misconduct, failing to deliver something on time, or making a mistake that causes financial or physical harm.
It’s important to examine this type of coverage and your professional risks each year to make sure you’re financially protected against a loss and that you have sufficient coverage to comply with any legal requirements in your state.
Commercial Auto Insurance
Most states require commercial auto insurance for all business-owned vehicles. If your company has purchased new vehicles, you need to ensure that every vehicle is properly covered. If you’ve changed the number of miles your vehicles travel or altered the type of cargo they carry, you may need to adjust your coverage to reflect this.
The Fiscal Impact
The most obvious consequence for a business to be uninsured is the financial impact of an expensive loss. Whether a business suffers from fire damage, theft, a temporary closure, or an expensive lawsuit, if an event isn’t covered by insurance, its full cost falls on the business itself and the owner.
If a claim exceeds a business’s coverage limits, that also eats into company profits. An uninsured or underinsured loss could put a company out of business. A small business owner who is self-employed and running their business on a “pass-through” basis could find their personal assets at risk in the event of an expensive lawsuit.
A Lack of Funding Options
If uninsured losses have a financial impact on your business, this can also affect your ability to obtain a business loan. Lenders will want to make sure your business is financially secure before granting a loan, and that you’re adequately managing your risks.
Reputational Loss
If your business, its equipment, or inventories were damaged from an uninsured loss, the financial strain it puts on your company could make it hard to meet your contractual obligations. If your business were unable to adequately defend itself from a lawsuit (even a frivolous one), that could also affect your reputation.
Key Areas to Assess During a Review
Some policies should be on every business owner’s shopping list, while others depend on the size of your business, professional licensing requirements, and the laws in your state.
General Liability Insurance
Also known as commercial liability insurance and small business liability insurance, this covers business risks such as a customer’s bodily injury at your business, damage to a customer’s property, and advertising injury, if someone claims you harmed their reputation as something your company published or posted online.
Property Coverage
Commercial property insurance covers your business space, whether you own or rent it, plus your business equipment and inventory against losses from fire, burglary, theft, wind, and lightning.
A Business Owners Policy (BOP)
If you have both general liability and commercial property insurance, you could combine them into one policy called a business owners policy (BOP). This is often less expensive than buying these policies separately.
Professional Liability Coverage
If you need professional liability or similar coverage to maintain a license in your state, make sure you have enough to comply with your licensing requirements. You might also compare your level of coverage against your risk of a lawsuit, in case you need to increase your coverage limits.
Workers’ Compensation Insurance
Workers’ compensation insurance, also known as workers’ comp, is required in most states for any business with a certain number of employees with a few exceptions like agriculture. It covers work-related health issues that aren’t covered by health insurance, such as an injury on the job.
It can cover an employee’s cost of medical care and lost income if an on-the-job mishap keeps them from working for a while. It also covers employers in case of an employee lawsuit over a workplace injury. Failure to comply with the workers' comp requirements in your state can leave your business vulnerable to an expensive lawsuit and fines.
Employer’s Liability Insurance
This insures a business against lawsuits from employees over work-related injuries. This is typically included in workers’ compensation coverage, but if your business is required to obtain its workers’ comp insurance from a state-run plan, you may need to buy an employer’s liability policy separately.
Employment Practices Liability Insurance
If your business is sued by an employee over a violation of their rights, employment practices liability insurance would cover your legal costs, such as attorney fees and a settlement. You might be able to add this coverage to your general liability or business owner’s policy. It covers breach of contract, discrimination claims, sexual harassment claims, wrongful termination, and defamation.
Business Interruption Insurance
Business interruption coverage insures your business against a loss of income after physical damage to your property, such as a fire or theft. While your commercial property insurance or business owner’s policy would cover your property damage, it would not offset any loss of revenue. For this, you would need business interruption insurance. It would reimburse you for your lost business income and help you cover your operating costs, such as paying your employees, making mortgage, rent, and lease payments, paying taxes and loan payments, and your relocation costs if you have to move.
Commercial Flood Insurance
If your business is in a flood zone, you may need commercial flood insurance, as your commercial property insurance does not cover damage from rising floodwaters or storm surges.
Hired & Non-Owned Auto Insurance
If you or your employees use any personal, leased, or rented vehicles for work, you may need hired and non-owned auto insurance. This is because your personal auto insurance covers you while you’re driving to and from work, but not while you’re driving for work-related reasons such as making deliveries, picking up supplies, or meeting with clients. A hired and non-owned auto policy would fill this gap by providing coverage for business-related vehicle use.
Cyber Insurance
Also known as cyber liability insurance, this insures your business against the cost of dealing with data breaches and cyberattacks. This includes the cost of recovering from an attack, notifying customers, legal fees, and fines.
Commercial Umbrella Insurance
An umbrella policy can be an affordable way to obtain additional insurance coverage against your underlying liability policies, such as general liability, commercial auto, and worker's compensation. If a claim exceeds the coverage limits on one of your liability policies, your umbrella policy would kick in and help offset the loss.
Liquor Liability Insurance
If your business involves the manufacturing, distribution, selling, or serving of alcohol, you’ll probably need liquor liability insurance to comply with the laws in your state and obtain a liquor license. It covers the medical costs, legal fees, and settlements if you sell or serve alcohol to an intoxicated person who causes physical or financial harm.
The Benefits of an Annual Business Insurance Checkup
By performing an annual review of your business insurance policies, you can make sure you have enough coverage for your risks, address any gaps in coverage, and look for ways to save money. It’s also a chance for you to make sure you understand what’s included in your policies and your coverage limits. This way, you can better assess your risks and how to manage them.
You’ll certainly want to make sure you comply with the insurance requirements in your state, as failure to do so could lead to financial penalties, legal costs, and possibly the loss of a professional license.
Just as you want to avoid being underinsured, being over insured can be expensive as well. Part of your annual review should include a risk assessment where you examine your potential liabilities and consider how much coverage you need.
This process not only ensures that your business is financially protected, it can also offer peace of mind to yourself as well as your customers, business partners, and employees.
Steps to Conduct an Effective Insurance Review
Start by drafting a list of all the updates and changes you’ve made to your business over the past year, as well as your business income and risks. Take a close look at your insurance coverage to make sure you understand what’s covered and look for any gaps where you may need to increase your coverage limits or add a policy.
You should also review your claims history over the past few years to see how much insurance you’ve needed. You can then consult with your insurance provider to review your policies and your business risks, consider any changes, and compare quotes.
How to Choose the Right Insurance Provider
Insurance licensing is handled by each state, so it’s a good idea to get your business insurance from a company that’s licensed to work in your state. This way, if you have a problem, you can reach out to your state's insurance regulator.
Try shopping around, comparing policies, and getting insurance quotes from a couple of providers. Don’t just look at the premium costs, look at the coverage limits and what you’re getting with each policy. You should also look for a provider with a solid financial rating. The Insurance Information Institute has a list of rating agencies that can help. You can also check online reviews to get an idea of what each provider’s customer service and claims assistance are like.
We Can Help with Your Insurance Review
Ready to protect your business with confidence? Contact Peoples Insurance for a free policy review today!