Does Your Business Need More Than the Minimum Required Insurance?

Insurance is a key part of protecting your business and personal finances. But small businesses also can't afford to overpay for this necessary tool. In many cases, this may lead business owners and managers to insure their business for minimum, standard, or bundled policy limits. Is this sufficient for your business? Possibly not. Learn six of the most important reasons why.

1. Your Business Grows and Changes

The longer your small business is in operation, the more it changes. What may have been sufficient insurance coverage when you operated from a rented office and a single truck is not sufficient as you add employees, vehicles, and business equipment.

When you began your business, you may have purchased a business owner's policy (BOP) that bundled several common insurance policies. But as you keep up with the trend to move more and more activities online, that policy may no longer be enough. You might need to add higher limits due to the increased risk of online transactions. You may also need additional coverage to protect against data breaches. 

2. Minimums Are Quite Minimum

Sometimes, you must meet minimum insurance requirements set by outsiders on a blanket basis. The most common is state insurance minimum coverage for liability on your business vehicles. In Illinois, this means $25,000 for the injury or death of one person, $50,000 for multiple persons, and $20,000 in property damage to others.

However, these amounts are unlikely to cover many accidents. Car and Driver estimates the average new car to cost more than $48,000, after all. So anyone whose car is totaled in an accident for which you or your employee was at fault would likely need to sue you for additional costs once your insurance limit is reached.

The best way to protect yourself from additional financial risk is to treat such minimum policy requirements as a starting point—and perhaps even a starting point that was set years ago. In some cases, you may be sufficiently covered by a minimum, but it is more likely that you should adjust it based on real experience. 

3. Lenders Have Their Own Agendas

If you borrow money to buy a vehicle, heavy equipment, or real estate, the lender generally requires that you insure it. They set the amount considered to be sufficient in this case. However, keep in mind that this insurance requirement is not there to protect you. It is there to protect the lender and ensure they get repaid if anything happens to the asset.

You need to look after your own interests in this relationship. For instance, if your mandatory insurance policy bases its coverage on the value of the vehicle at the time, this could be thousands of dollars lower than what you still owe. And that does not take into consideration the need to purchase a replacement, which may cost even more than what you spent on the first.

4. Every Business Is Different

The problem with standardized insurance amounts is that they are not designed to meet the exact needs of each business. They are, instead, an attempt to help the highest amount of people obtain at least some protection. Because your business does not have the exact same situation as others in your industry or area, your insurance should be personalized as well. 

For example, perhaps you use an ordinary truck to tow a piece of niche construction equipment to job sites. If both are totalled in an accident, the truck is likely to be fairly easy to replace. But the specialized equipment could be much harder or more expensive. You may even lose business while finding a replacement. The smart thing may be to focus on insuring the equipment more carefully than the truck.

5. Your Finances Are Unique

You buy insurance to help smooth out potential financial problems that arise from the loss or destruction of assets as well as risks to people involved in your business. But how much smoothing out does your particular business need? 

When you start out, your finances may be tenuous and highly reliant on personal credit and your own capital. You need more insurance to protect yourself if anything happens. But as you grow and your cash flow evens out, you can likely pay for more expenses in the event of a covered loss. Therefore, you do not want to over-insure at this point if you can absorb the costs. 

Insurance can be confusing, and it is not always clear when to go by standard recommendations and when to buy more insurance. The team at Illinois Insurance Center can help. We'll analyze your business needs, its financial circumstances, your personal risk, and current coverage limits—all to help you right size your insurance. Call us today to learn how we can help you or schedule an appointment. Illinois Insurance Center has been serving all of Chicagoland and the State of Illinois for 50 years!