Business insurance is your first line of defense in protecting your company from a wide variety of different potential threats. Without the right insurance—or with too little of the insurance you do need—you could be at great risk from the costs of a lawsuit, judgment, or in the event of an unforeseen emergency or disaster.
 
There are numerous types of business insurance available, and some insurance policies are a must-have for nearly every business, while others you might not need. The type of insurance you require will ultimately depend on the specific risks your company faces as well as its assets, so you should meet with us your Family Business Lawyer™ to identify the coverage your particular business should have in place.

In addition to not having the right types and levels of coverage, business owners make a number of common mistakes when purchasing business insurance. While we can help you determine the appropriate coverage for your company, here are a few frequently made errors to avoid when investing in business insurance.
 
1. Purchasing a policy that doesn't offer you legal representation in the event of a lawsuit
The right business insurance will not only pay out if someone wins a lawsuit against your company, but it will also hire a lawyer for you and pay your legal bills if your business is ever sued. To this end, make sure your insurance coverage offers a “duty to defend” your business in the event of a lawsuit, and not just a “duty to indemnify,” or payout, in the event of a judgment.

In fact, providing you with legal representation can be the most important component of business liability insurance, because your company can be sued at any time by anyone even if you've done nothing wrong. And if you can't afford to defend yourself against the suit, your business can be ruined by a single frivolous claim.
 
2. Failing to insure against loss of income
If your business is damaged in a fire, storm, or another unexpected event, having commercial property insurance will pay to rebuild and repair your workspace. However, if your business is shut down for even a short period of time, the loss of income can be devastating. Given this risk, consider investing in business interruption insurance, also known as business income coverage.

Business interruption coverage reimburses your company for the income lost due to the event, and it can also cover overhead expenses like rent or electricity while your operation is out of commission. Many businesses learned the hard way just how crucial such coverage is during the pandemic-related shutdowns of this past year, so let it be a lesson as to how vital such coverage can be.
 
3. Failing to adjust your coverage as your business grows
Like any other foundational business system, if your insurance isn't regularly reviewed and updated as your operation grows, your coverage may prove inadequate, putting your business at risk. In general, it's a good idea to review your insurance coverage on an annual basis, but as your business evolves, you should also revisit your policies whenever your company undergoes significant changes involving infrastructure, assets, and personnel.

While there are a number of events that could necessitate an audit of your insurance coverage, some of the key changes that require you to immediately review your business insurance include the following: relocating or renovating your office, hiring new employees, adding a new product, or service, purchasing new vehicles, and making changes to your top executives.
 
4. Failing to insure against employee lawsuits
While you probably don't want to think that one of your team would ever sue you, your employees (and independent contractors) are actually one of the most likely sources of litigation. In fact, nearly one in every five small businesses will get sued by a team member.
 
In addition to having clear employment agreements in place and formal processes for hiring and firing, you should invest in employment-practices insurance for your company. This coverage protects your business against lawsuits brought by both employees and contractors, and the right coverage will not only payout in the event of a judgment against you, but also pay for your legal costs.
 
5. Relying on homeowners insurance to cover a business run out of your home
You might think that your homeowners insurance policy would protect your home-based business from losses and liabilities, but this is a common misconception. Your homeowners policy doesn't offer coverage for any business property, including both equipment and structures used for business purposes. Your homeowners policy also doesn't cover business-related liabilities, such as slip and fall accidents.
 
Although you can get extra coverage added to your homeowners policy to cover your home-based business, if you run a business out of your home, you really should get both homeowners and business insurance. At a minimum, you'll need business liability coverage, property insurance, and business interruption insurance, which can be purchased bundled together under a typical business owner's policy.
 
What Is The Right Coverage For My Business?
Every business has its own unique risks and assets, so there's no way to know exactly what coverage your company needs without an evaluation. Before you sit down with an insurance agent, meet with us, as your Family Business Lawyer™ for an insurance audit.

We can support you by evaluating the specific risks your company faces at each stage of growth to determine exactly what kind of insurance you need and what levels of coverage will best protect your business assets both now and in the future. Contact us today to get started.

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