Insurance is crucial for any small business. Small-business owners may find themselves in a difficult situation without proper coverage if they suffer building damage or face a lawsuit. While obtaining adequate insurance for your company is critical, knowing when to reassess your coverage is also essential. As your business grows and changes, so do your insurance needs. Here are some instances when reevaluating your business insurance is necessary and why it is important.
You Have a Significant Revenue Increase
While all business owners know that they need to increase their revenue, many do not realize they should adjust their insurance coverage when it rises. The general liability premium rate may depend on your revenue. If you do not report an increase in revenue, you may have a large premium adjustment at the end of the year. Additionally, some policies cover receivables up to a certain point. Your policy should accurately reflect your average receivables to be covered if you need to file a claim for business interruption.1
You Have Changed or Added a Product or Service
Most business policies are for specific industries and industry-specific products. If your company decides to develop a new product or service outside the norm in your industry, it is essential to check your coverage. The changes to your business model may require you to increase your equipment coverage or add additional coverage geared toward the new product.1
You Make a Contract With a New Customer
Some customers may require that your company carry certain insurance and coverage to do business with you. The contract may state the requirements for insurance coverage. Discuss the contract with your insurance agent to see if you have the appropriate policies or if additional coverage is needed.2
You Update Your Legal Entity
Many small businesses go through a legal entity change as they grow or change their ownership. Some may start as an LLC or a partnership and decide to switch to a corporation. Others may already be incorporated and choose to apply for an S-Corp designation for tax purposes. Since each entity has different insurance needs, it is vital to reevaluate your policy to ensure that your coverage makes sense under the new structure.2
Company Vehicles Change
Your insurance company needs to know about any additions or reductions in company vehicles. Whether you are adding one company vehicle or a fleet of them, you should look at your insurance coverage and deductibles. Also, regularly update your drivers and the vehicles covered under the policy.2
If you have any of the above events occurring in your business, it is time to look at your business insurance policies. Even if there are no substantial changes, reviewing your coverage and costs is good practice before the yearly renewal to ensure that your business coverage is where it should be.