While small business owners frequently outsource many functions, they are the ultimate decision makers tasked with managing their business’s risk and evaluating the scope of coverage necessary to potentially offset those risks. Because of the myriad decisions small business owners must make, questions related to insurance procurement and coverage often receive scant to little inquiry. Generally, barring situations where a small business owner is a medical professional, architect, engineer, or other professional, new business owners frequently need to be reminded to add risk management and insurance procurement to the list of “must do” tasks before launching. Even when insurance is on the “must do” list, however, small business owners are usually concerned with costs and often procure just enough coverage to satisfy contractual requirements; such insurance is rarely carefully curated to the business’s risks.
The failure to properly tailor insurance coverage to a small business’s risk could be disastrous, given that problems for small business owners tend to hit harder than problems for large corporations. For example, a $20,000 uninsured theft by an employee could mean having to lay off other employees. Similarly, failing to procure sufficient general liability coverage could result in bankruptcy. Despite the potentially disastrous consequences of being uninsured or underinsured for certain risks, many small business owners make critical mistakes when managing their risk or procuring insurance. This article provides a summary of common types of insurance coverage required by small businesses and identifies common mistakes made by small businesses concerning insurance procurement and coverage.