By Aaron Swimmer
November 1, 2016

It’s a dangerous world out there. Businesses are constantly facing serious financial jeopardy; a product or personal liability claim, a destructive fire loss, a significant errors and omissions claim, fraudulent activity by a trusted employee… and no one’s coming to the rescue.  Except one, your Insurer! Maybe…

That’s when you ask yourself is there availability of insurance coverage to respond to the claim. Insurance not only provides possible indemnification for the loss, but can also provide for the legal defense costs which can be extremely expensive. Over the years I have noticed many executives have very little interest/knowledge of their insurance coverage and in many cases are significantly underinsured. It is prudent management for business owners to review their insurance policies and obtain advice from a knowledgeable insurance broker, risk management specialist or lawyer. The best way to know what insurance would be necessary is to assess specific circumstances and determine the size and the scope of the potential risk. While all businesses by nature are required to absorb some level of risk, the failure to ensure that the business has adequate insurance coverage can be existential. While incorporating a business is a smart step to limit liability, it does not replace the need for insurance coverage.

There are a wide variety of insurance coverages available to small businesses. Most businesses will require property insurance to cover property and buildings; personal property insurance can respond to the damage to physical business assets; business interruption insurance is designed to cover the loss of earnings if the business is temporarily shut down; vehicles owned or leased by the business will require automobile insurance coverage. It is important to keep in mind that businesses which operate out of a personal home are generally not covered by typical homeowner’s policies.

Another critical type of insurance is liability insurance, which could include general liability coverage and product liability if necessary. Further, depending on the circumstances, businesses should consider errors and omissions for professional liability coverage.  Consideration should also be given to whether the officers and the directors of the business should have insurance coverage to protect them from their potential liability as officers and directors.

It is also worthwhile considering the need for insurance for the owners, partners and key employees of the business. The loss of a key person can be particularly damaging to a small business and to their families. Various types of insurance, including life insurance, disability insurance, critical illness insurance, key-man insurance are worthy of consideration.

Not only is the scope of the insurance important, but so are the policy limits and those are very often overlooked. Businesses with inadequate limits face significant financial risk in the event of a major loss even if the type of loss is within the scope of the insurance coverage. Prudent business management includes having enough and proper insurance coverage.

Ask yourself this, if you have a catastrophic event, and you have failed to reasonably insure the business, who’s coming to help you?