Is Your Business Over or Underinsured? How to Find Out

Does the question of how to buy business insurance have you confused? You’re not alone; many small business owners don’t understand the amount or type of coverage they need to be fully protected on all fronts. Some opt for the cheapest policies or avoid buying insurance altogether in an attempt to minimize expenses, and others purchase coverage they don’t really need for fear of not being protected against every eventuality. Both approaches are extreme and can have serious consequences. Here are a few tips to help you find appropriate coverage for your business and ensure you’re protected against the risks that your industry faces.

How to Know if You Have the Right Amount of Small Business Insurance

If you type “what insurance do I need for my business” into Google, you’ll get a ton of answers, not all of which apply to every type of business. Some experts recommend just a handful of policies; others declare you need a dozen or more. So who should you trust?

Factors to Consider When Purchasing Business Insurance

The answer depends on your business and the legal requirements of your state. Some types of insurance are required for all U.S. businesses, and additional laws regarding coverage vary by state. For insurance that isn’t compulsory, however, you can determine how much you need by assessing:

• Your company’s assets and liabilities
• The biggest risks associated with your business type and industry
• Risks associated with your products and services
• Your most likely potential losses
• Risks from hazards and natural disasters common in your area
• Equipment and vehicles used in daily operations
• The potential profit loss from a temporary halt in operations
• Potential cost of a legal battle if a customer or employee files a suit

Along with reviewing the insurance laws for your state, this evaluation should give you an accurate estimation of the amount of coverage to invest in. Changes such as taking on more employees, purchasing new equipment or opening a second location require re-evaluation and updated policies to ensure nothing is left unprotected.

What Happens if You Fail to Meet Business Insurance Requirements?

A report released by Next Insurance revealed 44 percent of small business owners applying for coverage had never had any kind of business insurance, even though they’d been in operation for a year or more. Being under-insured was a problem for as many as 75 percent of U.S. businesses in 2015, and the 2018 Side Business Survey conducted by The Hartford showed only 12 percent of people bother to get insurance for their side hustles. You don’t want to make the same mistake as these business owners. Skipping out on the business insurance required by law can get you in hot water, especially if you have employees. Workers’ compensation and unemployment insurance are necessary as soon as you start hiring staff members, and some states also require you to purchase disability insurance. If you have company vehicles, each one must be insured to cover expenses in the event of an accident. Other types of insurance may be mandatory depending on the state in which your business operates. Just meeting legal requirements isn’t enough to ensure protection. Without adequate coverage, you could:

• Be violating your lease if your landlord requires property insurance
• Be unable to obtain business licenses
• Lack funding to cover legal costs
• Lose your equipment or property in the event of a flood, fire or other disaster
• Go bankrupt due to losses associated with a lengthy period of closure

Your best option is to seek out comprehensive business insurance that covers both legal requirements and the unique needs of your business. Having too little insurance leaves gaps, which you might not discover until it’s too late and you don’t have any way to be reimbursed for losses.

The One Major Pitfall of Having Too Much Business Insurance

Despite all the potential consequences of being under-insured, there’s no benefit to buying extra insurance “just in case.” Having too much insurance means too much of your income is going toward paying for policies, which can:

• Negatively impact cash flow
• Reduce your monthly revenue
• Decrease profit projections
• Hold you back from growing

With excessive premiums affecting your budget this way, it might be hard to qualify for a business loan or an equipment lease should you need one in the future. You’re better off purchasing what you need right now, and getting more coverage if your requirements change in the future.  

How to Get Business Insurance that Meets Your Needs

Finding the best small business insurance coverage can be a hassle if you’re not familiar with policy types, state laws or potential liabilities. Shopping around takes time, and once you do find good coverage, there’s a ton of confusing paperwork to tackle. Don’t let this stop you from getting the insurance you need. Your business is valuable, and it’s vitally important to protect the investment of time, money and energy you’ve put into getting it off the ground. The advisors at National Business Capital and Services can help you find a policy designed specifically for your business, giving you have just the right amount of coverage. Having someone else handle the documentation takes the hassle out of the process so that you can get protection for your business sooner.