A guide to help you close the gap on potential liabilities for your small business
Planning for the longevity of your business means anticipating the unexpected. Business insurance covers common losses that businesses of all sizes encounter from various sources. Although general liability insurance covers the basics for most businesses, purchasing additional insurance covers the gaps that most general liability policies may leave exposed.
Top small business insurance gaps
The following types of insurance are designed to cover common insurance gaps.
Employee-related risks
Employees add obvious value to businesses, but they also create certain risks. For instance, your business may be liable if one of your employees engages in sexual harassment, discrimination or wrongful termination against another employee.
Workers who are subjected to hostile treatment in the workplace may file a claim against their employer. Even though a company officer or director may have been the one to engage in wrongful conduct against the employee, the business may be vicariously liable for the manager’s actions too.
Employment practices liability insurance covers businesses against losses incurred due to employment practices. Directors and officers (D&O) liability insurance covers expenses a business may incur due to the conduct of employees who are in leadership positions.
Professional negligence risks
Businesses that provide a professional service are exposed to the risk of customers filing a claim if the company makes a costly error. For example, a client may file a lawsuit against an accounting firm if the firm fails to file important financial documents in a timely manner and the customer incurs a penalty.
Professional liability and errors and omissions (E&O) coverages protect professional service providers in the event of a costly mistake.
Business interruption risks
Sometimes, a business may lose revenue due to external factors. Let’s say a large window at a shopping center shatters, and the repair crew blocks the main entrance for several weeks. In that case, stores closest to the main entrance may end up losing business due to limited accessibility.
Business interruption insurance supplements lost income for businesses that close temporarily due to physical damage.
Cybersecurity risks
Cybersecurity is a growing concern for most businesses. Fortunately, the insurance industry has made strides to keep up with the challenges posed by modern technology.
Hacking and data breaches can compromise customers’ personal information, allow criminals to access your business’ financial accounts, or even cause costly delays in your business operations.
Cybersecurity insurance compensates businesses for losses incurred due to cyberattacks through employees’ devices or through outside IT services.
Other potential gaps in small business insurance coverage
There are several other policies that cover common business insurance gaps. The following insurance coverages protect businesses in the event of weather-related losses, travel-related setbacks, liability for dangerous or defective products, and losses related to special events.
Disaster insurance
Depending on where you live, natural disaster insurance may be a necessity. Businesses in areas that have an increased risk of flooding, tornadoes and earthquakes need policies that specifically protect their businesses against common natural disasters.
Travel insurance
Owners of businesses that require frequent travel should consider travel insurance. Production company employees often transport pricey equipment on airlines. Travel insurance provides compensation for trip cancellations and lost luggage.
Product liability insurance
Businesses that make and sell products should invest in product liability insurance. These companies will almost inevitably have 1 or more customers who have an adverse reaction, become injured while using a product or are generally dissatisfied with the product to the extent that they file a lawsuit against the business.
Product liability insurance provides protection against potential lawsuits and product recalls.
Special event insurance
Businesses that host events often require special event insurance prior to securing a venue. Special event insurance provides protection for both the venue and the host. Event hosts are protected against cancellations that may cause the host to lose revenue or lose the money they paid to reserve the venue.
The most common type of event insurance protects the venue and the event host against property damage and injuries that may occur during the event.
Examples of businesses that require special event insurance include the following:
- Festival planners
- Concert organizers
- Fashion show producers
- Trade shows
- Marathon organizers
Private individuals may also purchase special event insurance for weddings and other private parties.
Maintaining business insurance
As businesses grow and evolve, their needs change. Therefore, business owners should regularly review their insurance coverages to determine whether the current coverages are still relevant. You may find that your business has too much coverage in areas that no longer apply to your business or not enough coverage in areas of expansion.
Work with a licensed, experienced insurance agent to determine your coverage needs and to review your coverages annually. An insurance agent will identify areas in which you may need additional coverage and areas where you may be able to save money.
The advantages of making sure your business has the right coverage from the outset far outweigh the possible losses your business might incur in the event of an incident that would have been covered by insurance.
