You’ve built something remarkable. Your business generates revenue, serves customers, and maybe even employs a growing team. You’ve checked the obvious boxes: general liability insurance, property coverage, maybe workers’ compensation. You think you’re protected.
But here’s the uncomfortable truth: most business owners have significant gaps in their insurance coverage. These gaps often remain invisible until disaster strikes, and by then, it’s too late. A single lawsuit, data breach, or unexpected loss of a key employee can unravel years of hard work if you’re not properly protected.
In this article, I’ll walk you through the most commonly overlooked business insurance needs and show you how to conduct a thorough insurance audit so you can bulletproof your business against risks you didn’t know existed.
The Coverage Gaps That Could Sink Your Business
Traditional business insurance packages cover the basics, but they rarely address the evolving risks that modern businesses face. Let’s explore three critical coverage areas that business owners frequently overlook.
General Liability Coverage: Making Sure You Have Enough
You probably already have general liability insurance, but do you have enough? Many business owners purchase minimum coverage limits without considering what a serious claim could actually cost.
General liability covers bodily injury, property damage, and advertising injury claims. A customer slips and falls in your store, requiring surgery and months of physical therapy. A delivery damages a client’s expensive equipment. These scenarios can easily exceed basic policy limits.
Review your current limits and compare them to your actual risk exposure. If you regularly have customers on your premises, handle expensive client property, or operate in industries with higher liability risk, you may need coverage well beyond the standard $1 million per occurrence limit.
Employment Practices Liability Insurance: Protection From the Moment You Hire
The moment you hire your first employee, you create a new category of risk that most business insurance doesn’t cover. Employment practices liability insurance (EPLI) protects you against claims of wrongful termination, discrimination, harassment, and other employment-related issues.
You might think you’re a good employer who would never face such claims, but employment lawsuits are increasingly common and expensive to defend. Even baseless claims can cost tens of thousands of dollars in legal fees. EPLI covers defense costs, settlements, and judgments related to employment disputes.
This coverage becomes critical as you grow your team. With multiple employees come more complex workplace dynamics and greater exposure to claims. Many EPLI policies also include access to HR resources and legal hotlines, helping you avoid problems before they become lawsuits.
Cyber Liability Insurance: Your Digital Armor
If your business uses computers, stores customer data, or processes payments electronically (which describes virtually every business today), you need cyber liability insurance. This isn’t just for tech companies anymore.
Consider this scenario: a ransomware attack locks you out of your systems. Your operations grind to a halt. Customer data gets compromised. You’re facing notification requirements, potential lawsuits, lost revenue, and expensive IT forensics. Without cyber liability coverage, you’re paying for all of this out of pocket.
Cyber liability insurance typically covers data breach response costs, notification expenses, legal fees, regulatory fines, and business interruption losses. Given that data breaches can be financially devastating for small businesses, this coverage isn’t optional anymore.
Professional Liability Insurance: Protecting Your Expertise
If you provide advice, services, or expertise to clients, professional liability insurance (also called errors and omissions or malpractice insurance) should be non-negotiable. This coverage protects you if a client claims that your professional services caused them financial harm.
Traditional general liability policies won’t cover these claims. They’re designed for bodily injury and property damage, not professional mistakes or failures to deliver promised results. Professional liability fills this critical gap. And, even if you think you’d never make a mistake or get sued, remember this: anyone can sue you for anything, at any time, even if you’ve done everything just right. If that occurs, whether you were at fault or not, your professional liability insurance will pay for your defense.
Who needs this coverage? Consultants, accountants, IT professionals, real estate agents, marketing agencies, architects, engineers, lawyers, coaches and countless other service providers. Essentially, if you sell expertise rather than products, you need this protection. Legal defense costs alone can exceed $50,000, even when you’ve done nothing wrong.
Key Person Insurance: Safeguarding Your Most Valuable Asset
What happens to your business if you or another critical person suddenly dies or becomes disabled? Key person insurance provides your business with a financial cushion if someone essential to operations dies or becomes unable to work.
The business owns the policy, pays the premiums, and receives the death benefit. These funds can replace lost revenue while you search for a replacement, cover recruitment costs, and maintain operations when a key person’s expertise is suddenly unavailable.
Think beyond just yourself as the business owner. Consider anyone whose absence would significantly impact your operations: a master technician with specialized skills, a rainmaker who brings in most of your business, or an operations manager who keeps everything running smoothly.
Conducting Your Annual Insurance Audit
An insurance audit sounds bureaucratic and tedious, but it’s actually a straightforward process that can save your business from catastrophic financial loss. I recommend conducting this audit annually, or whenever you experience significant business changes like hiring employees, launching new products, or expanding to new locations.
Start by Gathering All Your Current Policies
Collect every insurance policy your business carries. Create a simple spreadsheet listing each policy, the carrier, coverage limits, deductibles, premium costs, and renewal dates. This gives you a clear picture of your current insurance landscape.
Assess Your Current Business Operations and Risks
Now compare your insurance portfolio against your actual business operations. Has your business changed since you last purchased coverage? Do you store customer data that didn’t exist before? Have you added new services? Do employees drive their personal vehicles for business purposes?
Identify Coverage Gaps and Review Limits
With your policies documented and risks assessed, identify gaps where you lack coverage. Common gaps include cyber liability, professional liability, employment practices liability, and directors and officers insurance.
Also review your coverage limits. That $1 million general liability policy that seemed adequate five years ago might be insufficient today. Consider your largest potential loss in each category.
Work With an Insurance Professional
Insurance is complex, and attempting to navigate it alone often results in gaps. A qualified commercial insurance broker can help you understand your risks and identify appropriate coverage options. Look for brokers who specialize in your industry.
Get the Protection Your Business Deserves
As your LIFTed Business Advisor and attorney, I help entrepreneurs like you identify and address critical business risks, including insurance gaps that could threaten everything you’ve built. I offer a LIFT Business Breakthrough™ Session where I’ll review your current legal, insurance, financial, and tax systems, identify vulnerabilities, and create a comprehensive plan to protect your business properly.
Don’t wait until a crisis reveals the gaps in your coverage. Book a call today.
This article is a service of a Personal Family Lawyer® Firm and LIFTed Advisors® Attorney. I offer a complete spectrum of legal services for businesses and can help you make the wisest choices with your business throughout life and in the event of your death. I also offer a LIFT Business Breakthrough Session, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.