How to Assess if Your Business Insurance Provides Adequate Coverage

A good approach to take when assessing if your business insurance provides adequate coverage is to go through a series of steps that address business hazards, assess replacement costs, identify insurance risk probabilities, and evaluate insurance options. The following five steps, one at a time. These steps can assist business owners or managers in determining if their business insurance coverage is adequate.

Business insurance factors

The following topic points can help a business manager or owner 1) itemize which business insurance coverage you need most, 2) accurately assess the value of your business or separate items within the business, 3) classify insurance coverage according to risk, cost and probability and 4) help in knowing what to look for if and when you decide what coverage is best for your business.

Business insurance is a business decision and should therefore be approached in a business like manner. Assessing if your business has the right amount of coverage can be done in a way similar to determining how much to spend on advertising, how much inventory to hold, and how to best implement a revenue strategy. In other words, insurance is no exception to the business of business.

• Address business hazard(s):

Addressing business hazards can be accomplished by by a) studying your articles of corporations, bylaws and any contracts if applicable, b) familiarize with the state and federal law which your business is subject to, and c) perform a business analysis of your operational hazards, possible liabilities, and asset structure. Doing these things will assist you in your first line of defense against financial loss.

• Assess replacement costs

Use up to date balance sheets and net worth estimates when determining the replacement cost of your business. If you forecast asset and net worth growth accounting for this in your business insurance coverage may be a good idea. Properly documenting inventory, equipment, building and other assets is important in proving the worth of your business to an insurer if you need to file a claim. It might also be a good idea to keep in mind insurance companies distinguish between replacement costs and actual worth in their policies.

• Identify risk probabilities

Prioritize risk probabilities with insurance coverage. For example, if your business risk assessment indicates you are less at risk of loss from theft, and the theft aspects of the insurance cause it to be a high percentage of the premium, placing this type of coverage lower down in your coverage assessment may be a wise choice. Conversely, if your business risk assessment deems your liability risk to be high and this insurance coverage is less expensive, you may decide this item should go to the top of the coverage requirements.

• Evaluate insurance options

Become acquainted with the types of insurance and insurance packages available. Essentially there is insurance coverage for almost everything, not including bankruptcy. However, declines in revenue directly attributable to 'interruptions' in the typical daily process of your business can be insured. From employees to buildings, there's often business insurance coverage available. If you are not already aware of the types of coverage available, it shouldn't take you long to find out as there are man insurers who would be more than happy to get your attention and money to serve your business needs.

If these previous steps are carried out effectively, you should have a good idea of what your greatest insurance needs are. With this knowledge you can then speak with insurers about coverage deals. Shop around for the most competitive bid or quote. By tweaking, adjusting deductibles, coverage amounts, and business protections the quotes may go down. Also, by combining policies and streamlining your business for efficiency, you not need as much as equipment and inventory that can lower insurance and operational costs.

Additional business insurance considerations

• Business structure 

Limited Liability Corporations (LLC's), Sole Proprietorships, S-Corporations, C-Corporations, and Partnerships all have differences that can affect whether or not the business is adequately covered by insurance. Knowing the legal aspects of your business structure and the operating vulnerabilities of your business can help you a) save unnecessary costs, b) protect you and/or your business from law suits, c) and potentially increase clientele through brand confidence.

• Business specific insurance needs

There may also be business specific insurance needs that aren't covered by the usual business insurance policy. For example, athlete injury insurance, essential body part insurance, website insurance, indispensable employee insurance, or officer kidnapping insurance. Periodically reassessing your business insurance needs may also be a good idea if the business structure, features, assets, employees etc. change.

• Developments in insurance products

Business insurance coverage itself may change over time as well making the need for business insurance reassessment a part of managerial operational adjustments. When you have determined your business insurance needs, doing a once over of our assessment with one or more of your insurer, business executives, partners, or employees may help uncover business insurance shortcomings, overestimates and insurance coverage optimization techniques.