You have enough to worry about running your business without the added concerns of your business insurance policy. However, unless you are fortunate enough to have a person or department to focus on insurance coverage, you do need to pay attention to this topic – and even if you do have personnel to help you out, it is important that you understand the insurance issues of your business.
Arguably, one of the larger mistakes business people can make is to not understand the risks of their own industry, or turn their insurance blindly over to a broker who does not understand industry-specific needs. For purposes of this article, we will assume you understand the issues and are engaged with your insurer.
With that in mind, here are three of the top mistakes with respect to business insurance.
- Lack of Umbrella Coverage – Some businesses avoid umbrella coverage, thinking it is too costly. However, just as with personal liability concerns with auto insurance, you need to scale your business coverage to your assets. A fatal accident involving one of your employees in work-related duties could be catastrophic to your business.
Umbrella coverage is quite useful with respect to general liability, components of worker's compensation insurance, and your business-related auto insurance. Contrary to being too costly, it is usually a pretty good deal if scaled properly. If you do not understand the risks of your industry well enough to assess this yourself, seek qualified business insurance assistance.
- Assuming Fire Insurance is the only Property Insurance you Need – Every business obtains fire insurance as a matter of course. But what about losses from flooding or earthquakes (if you live in a seismically active area)? Your standard business fire insurance policy won't protect you from these perils, so speak with your agent to make certain you add these key coverages.
- Employee Liability Coverage – Small businesses are especially vulnerable to this, perhaps thinking that since they have very few employees and the employees are treated well, they do not need protection from employment-related claims. They may well be treated like family, but even family members have been known to sue each other.
As a small business owner, you must be especially careful – a lawsuit that is a mere annoyance for a large company could put you completely out of business. While general liability insurance is still important, you also need Employee Practices Liability Insurance to cover issues such as sexual harassment claims, discrimination in hiring, and employment termination without sufficient cause.
Over time, the costs of this insurance have gone down, and claims have gone up. For many businesses, it is a good buy.
Remember, insurance is important but so are preventative measures. Make sure you also have well-communicated written policies in this area, and that you consistently enforce them.
- Business Interruption Insurance – You may have covered potential damages to your building, assets, and personal property. However, if your facilities are wiped out due to some form of catastrophe, what will you do for income during the rebuilding period? Can you locate temporary facilities to generate income?
It is important to have sufficient business interruption insurance (also called business income insurance) to cover the gap. By the time you recover, some of your customers are likely to have moved on, and you will receive the added impact of lower income once you start back up. The correct amount for you will depend on factors such as the industry you are in, your ability to relocate on a temporary basis, your normal cash-flow streams and the length of time needed to rebuild.
This article touched on four common mistakes businesses make in assessing their insurance needs. However, as with all "top" lists, you may have a different set of priorities or needs. The main thing is to pay attention and don't let your insurance issues run on autopilot. It is too important to the future of your business.