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Over-Insuring or Under-Insuring Your Small Business

Your business isn’t just a job; it’s a passion and it’s your livelihood. But no matter how much effort, time and dedication you put into growing your business you can never be truly free from potential risks. That’s why business insurance is essential. Consider it the foundation of your risk management plan so that you don’t find yourself financially crippled in the event of a lawsuit or a loss to business property. Of course, since every business is different there really isn’t a standard cookie-cutter policy for any type of business. So you need to buy coverage that caters to your specific business your specific industry and the risks that you’re exposed to on a daily basis. In other words, you need the right coverage and the right amount of coverage.

Why do I need small business insurance?

Your business has assets and insurance helps you protect them. Alternatively, it can help reduce the financial burden of an unexpected event. It helps you replace your property or rebuild your premises if they’re damaged by an insured peril and you can get a variety of liability insurance coverage.

Some insurance is required by law or by an industry regulatory body. If you’ve financed company vehicles or property, your lenders will usually require the assets be protected by insurance as well. Finally, in certain industries, customers will look for businesses to be insured.

Is it possible to be under-insured?

Absolutely. The worst case of under-insuring is having no insurance at all. Common causes of under-insuring your business include:

  • Sharp rises in labour or material costs.
  • Undervaluing your company’s equipment or rebuild costs.
  • Not getting the appropriate endorsements or policies for your business needs.
  • Your business growing quickly or entering a new area.

A broker can help you avoid undervaluing rebuild and replacement costs as well as finding you the appropriate coverage for your company’s needs. They can also advise if you need to increase the amount of insurance you have.

Is it possible to be over-insured?

On the flipside, over-insuring your business means that you have purchased too much coverage and exceeded your actual loss exposure or what the insurance company would actually pay in the event of a loss. If you’re over-insured you’re paying more than you need to in annual insurance premiums and this can obviously affect your business’ bottom line.

Working with a broker will ensure you’re not over-insuring your business.

What small business insurance do I need?

Most businesses require a minimum of commercial property and commercial general liability insurance. The former covers the repair or replacement of your company’s property if it’s damaged by an insured peril. The latter covers expenses related to a third party getting hurt or having their property damaged due to you or one of your employee’s unintentional negligent actions.

If your company owns any vehicles or uses vehicles for business purposes, you’ll need a commercial vehicle policy. There are a few different types of coverage available depending on if you have a fleet or just a few vehicles and if the vehicles are part of your primary operations, such as trucking or taxi services.

If you provide a professional service or advice, you’ll require professional liability insurance. Also known as errors and omissions insurance, this covers expenses related to being sued for causing a third party financial loss in the course of providing your professional service or advice or failing to provide it.

Other coverages available include:

  • Cyber insurance
  • Product liability
  • Equipment breakdown
  • Employee theft or crime coverage

Get the right amount of insurance coverage for your small business

To get the right coverage and prevent over-insuring or under-insuring your business, you should review your assets and liabilities on an annual basis with your insurance broker.

By taking the time to review your business and talk to your insurance professional you can ensure that your policy reflects your current business and its risk profile.

While no one wants to flush money down the drain by being over-insured no one wants to be caught short by being under-insured either. By completing this annual review and discussing any changes with your insurance broker you can rest assured you have the right coverage.