Business owners purchase insurance to protect their property, employees, income, and operations. Unfortunately, having insurance does not always mean every risk is covered. Policies contain limits, exclusions, deductibles, and conditions that can create costly gaps.
Here are five common business insurance gaps every owner should review.
- Inadequate Business Income Coverage
Property insurance may pay to repair a building or replace damaged equipment after a covered loss, but what happens to your income while the business is closed?
Business income insurance may help replace lost income and cover continuing expenses such as:
- Payroll
- Rent or mortgage payments
- Taxes
- Loan payments
- Utilities
- Temporary operating expenses
A common mistake is selecting an insufficient limit or an indemnity period that is too short. Rebuilding, obtaining permits, replacing equipment, and restoring customers may take much longer than expected.
Businesses should also consider contingent business income coverage. It may protect against certain income losses caused by covered damage to an important supplier, manufacturer, or customer.
- Cyber Risks and Data Breaches
Many small-business owners assume cybercriminals only target large corporations. In reality, smaller organizations can be attractive targets because they may have fewer security resources.
A traditional general liability or property policy may not adequately cover losses involving:
- Ransomware attacks
- Data breaches
- Stolen customer information
- Business email compromise
- Cyber extortion
- System interruption
- Notification and credit-monitoring expenses
- Regulatory investigations
- Cyber-related lawsuits
Cyber insurance can help address both the business’s direct recovery expenses and certain claims made by customers or other affected parties. Coverage varies considerably, so review security requirements, exclusions, sublimits, and reporting conditions carefully.
- Personal Vehicles Used for Business
Employees and owners frequently use personal vehicles to visit clients, run errands, make deliveries, or travel between job sites. However, a personal auto policy may exclude or restrict coverage for some business activities.
A commercial auto policy generally covers vehicles owned by the business, but it may not automatically cover every vehicle used on its behalf.
Hired and non-owned auto coverage can help protect the business when employees use:
- Personal vehicles for company errands
- Rented vehicles for business travel
- Leased or borrowed vehicles
- Vehicles not titled to the business
This coverage generally protects the business’s liability exposure. It does not necessarily pay for damage to an employee’s personal vehicle.
- Professional Errors and Advice
General liability insurance usually addresses claims involving bodily injury, property damage, and certain personal or advertising injuries. It may not cover financial losses caused by professional advice, errors, omissions, or failure to provide an expected service.
Professional liability insurance—also called errors and omissions insurance—may cover claims alleging:
- Professional negligence
- Incorrect advice
- Missed deadlines
- Errors in completed work
- Failure to deliver promised services
- Misrepresentation
- Breach of professional duty
Consultants, technology companies, accountants, designers, insurance professionals, medical providers, and many other service businesses should evaluate this exposure. Even a claim without merit can generate substantial legal-defense expenses.
- Insufficient Liability Limits
A serious accident or lawsuit can quickly exceed a general liability, commercial auto, or employer’s liability limit. Medical expenses, legal fees, settlements, and court judgments can place the company’s assets at risk.
Commercial umbrella or excess liability insurance can provide additional limits above certain underlying policies. However, it does not cover every loss excluded by the underlying insurance.
Businesses should review their limits after:
- Revenue or payroll increases
- Expansion into new locations
- Purchasing additional vehicles
- Signing major contracts
- Hiring more employees
- Beginning work for larger clients
- Adding new products or services
Contract requirements should also be examined because customers and property owners may require higher limits than the business currently maintains.
Other Coverage Gaps to Consider
Every business has different exposures. Additional gaps may involve:
- Employment practices liability
- Employee theft and crime
- Equipment breakdown
- Flood or earthquake damage
- Pollution liability
- Product recall expenses
- Ordinance or law coverage
- Valuable papers and electronic records
- Tools and equipment taken off-site
- Spoilage and utility interruption
Changes in your operations can also create gaps. Adding employees, vehicles, equipment, locations, services, or new sources of revenue should trigger an insurance review.
Schedule an Annual Business Insurance Review
A business insurance policy should evolve with the company it protects. An annual review can uncover missing coverage, outdated limits, incorrect classifications, and newly developed exposures.
Contact our agency to schedule a business insurance review. We can help identify potential gaps and build an insurance program based on your company’s current operations, contracts, and risks.
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