To answer that question, we could point to countless examples of business owners left in the lurch after either not having insurance (see: "Only One-Third of Small Businesses Have This Disaster Survival Tool"), being underinsured (see: "Anthem's Data Breach Reminds Us Why Insurance Coverage Limits Matter"), or having the wrong type of insurance (see: "Why Your General Liability Insurance Doesn't Cover Data Breaches").
But in some cases, not having small business insurance is straight up illegal.
As you may know, most states require employers to carry Workers' Compensation Insurance as soon as they hire their first employee. New York is one of those states (you can brush up on its Workers' Comp laws here), and it doesn't mess around when enforcing those rules.
According to an Insurance Journal report, New York inspector general's office brought the hammer down on four men for various Workers' Comp violations. The report states…
- Douglas S. Griffen, owner of Fingerlakes Excavating LLC, was charged with falsifying business records to make it seem as though he had valid Workers' Comp coverage in order to land two construction contracts worth $72,000.
- Roger Camby, owner of Lovesoy Candles and Gifts, was charged with insurance fraud for operating a business while collecting Workers' Comp benefits.
- John A. Francher, owner of Greenbriar Home for Adults, was charged with failing to secure Workers' Compensation for his 10 employees, which is a felony in New York.
- Steven M. Spratley, owner of Spratley and Sons Tree Surgeons, was charged with a Workers' Comp felony after denying a severely injured man was his employee to avoid liability for the employee's work injuries.
If there's one thing you can learn from these business owners, it's that Workers' Compensation violations are serious offenses that can rack up both fines and jail time, depending on your state's laws. Another point these felonies should drive home is this: in some cases, small business insurance is less an optional protection than it is a necessity to run your business.
Small Business Insurance: A Safety Net and a Passport
You may already know that business insurance can give you financial protection when your commercial property is destroyed, when your employees are hurt, and when your business is sued. But it functions on another level, too: it demonstrates to your clients and business partners that you are solvent enough to account for your mistakes, and it helps you adhere with state laws.
That edge can give you a leg up on competitors and help you…
- Land client contracts. Many clients may demand that you carry Professional Liability Insurance (i.e., Errors & Omissions Insurance) before they work with your business.
- Sign commercial leases. Landlords may require you to carry Property Insurance for the building's contents and General Liability Insurance to cover your responsibility for visitor injuries.
- Adhere with state regulations. Most states require you to carry Workers' Compensation Insurance. You may be required to carry E&O Insurance in some states for certain industries, too.
Without small business insurance, you may be inadvertently violating state laws, missing out on opportunities to expand your clientele, and unable to lease commercial spaces.
All Good Things Have Limits
Like anything else in this world, there are limits to what small business insurance can do. For example, Workers' Comp benefits can help you out if your work leaves you with a devastating injury, but it's not a blank check. As the case above illustrates, you can't work and claim your Workers' Comp replacement wages, which are designed to help you out when your injury keeps you from working. Doing so would be gaming the system and punished accordingly.
Every policy, no matter the type, has exclusions (i.e., events and situations it won't cover) and limits (i.e., the maximum amount it can pay toward a claim). So even if you have small business insurance, you won't get the most mileage out of your coverage unless…
- Your policy addresses your most pressing risks. We tend to warn business owners to prioritize coverage over premium price because there's no point in paying for a policy that doesn't address your risks.
- Your coverage limits are adequate. An experienced insurance agent can help you determine the appropriate limits for your policies based on your risk profile, revenue, and needs.
To learn more about how to choose appropriate insurance limits, read "Target's Cyber Liability Insurance Covered 36% of Its Data Breach Costs. How Much Does Yours Cover?"