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The cost of Underinsuring your business.


It’s the way life works.

Your business has been running along smoothly with the same insurance coverage you have had for years. You’ve never had a claim and never plan on making one, besides can your business really cause THAT much damage?

Every year at renewal you want the premium to get lower and lower, so you remove a coverage here, reduce the limits for another one there, etc, etc.

Then it happens.

A car accident, a workplace mishap, a job that you or your employees have done thousands of times for whatever reason goes arwy.

No matter the time, a claim when your business is underinsured can have a devastating impact on your bottom line.


What is being underinsured?

Simply put, Underinsurance refers to having insufficient coverages in your insurance policy for your business.

Whether it is due to being mindful of the premium, or not being educated on what coverages your business needs, underinsured businesses are a growing problem in the United States. According to a survey by Marshall & Swift/Boeckh, 75% of businesses in the U.S. are underinsured by 40% or more.

Businesses who do not have the proper insurance coverage face a variety of risks that could impact their bottom line. In the event of a claim, being underinsured may result in economic losses for the policyholder, since the claim could exceed the maximum amount that could be paid out by the insurance policy.


.Why are businesses underinsured?

Small business owners have a variety of excuses for not having sufficient insurance coverage for their business, including:

  • Costs of insurance

  • Not sure what coverage they need

  • Don’t think that they need to have insurance

Underinsured also happens when a small business owner does not understand insurance requirements, miscalculates their company value, or underestimates business growth. In an attempt to save money, some business owners may also purchase limited insurance. No matter the reason, small businesses who are underinsured run the risk of potentially devastating consequences.

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What are the risks faced?


Business owners who are underinsured are exposed to financial or legal risks on a daily basis. If a business is underinsured, their insurance claim payout might only cover a portion of the claim, with the business having to cover the rest of the amount out of pocket.

Many threats could endanger a business that does not have the correct insurance coverage, such as:

  • Financial impact: In the time of a cataclysmic event, such as a fire, flooding, hurricane or major storm, not having the right insurance coverage could be devastating for a business to recover from financially.

  • Legal action: Customers, clients and even employees could take legal action against a business if they fail to deliver on a contract. Lawsuits could be financially draining to a business if they do not have the right insurance coverage.

  • Non-compliance: Local, state and federal laws require businesses to have insurance coverage for a variety of risks. If your business doesn’t have these insurance programs, they could be at risk for penalties, high fines and revocation of licenses.

  • Reputation damage: Small businesses can be at risk for reputational damage from issues caused by customer/client complaints or cyberattacks. Underinsured businesses might not have the right coverage to assist in the payout for these types of damages.

  • Loss of Business: Catastrophic events could damage a small business’s property and equipment, directly affecting the business’s productivity and, ultimately their profit. Recovering from paying for this damage above and beyond what insurance covers could be detrimental to small businesses and could put small business owners into personal bankruptcy as well.


How does my business prevent risk ?

Like most things in life, the best way to prevent being underinsured is to get prepared.

When purchasing insurance coverage for your small business, you need to be prepared to discuss all aspects of your business with your insurance agent. Talking things over with your agent will help them understand your business's insurance needs. Each business has its own unique insurance risks and requirements. Since there are several commercial insurance options, you must understand the level of risk before you choose your coverage.

After you purchase coverage it is also very important to review and update the policy every year: Your business needs change, and so should your insurance. Make sure to review the policy, coverage and any changes for the upcoming year.


If you are looking for more guidance on what kinds of coverages your business needs feel free to visit our website to learn more.

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