Not understanding business insurance coverage is the number one regret for small business owners
92% of small business owners have at least one regret from their first 12 months in business. And our data shows that 50% of them wish that they had understood better what insurance coverage their business actually needs. This was rated as their number one regret. Business owners with three-to-five years of business experience learn more along the way, but 36% of them still rate this as their biggest regret.
Knowledge about types of small business insurance and coverage is a roadblock for many. The same survey found that one in five small business owners say they don’t have business insurance because “it’s too confusing” to understand coverage.
What are the other common regrets for small business owners?
When asked “What do you wish you had done earlier to better protect your business?” survey respondents also listed the following regrets:
- They wish they’d built stronger financial reserves: Shared by 44% of first-year owners, 37% of established owners.
- They feel they should have sought expert advice (e.g., legal, insurance, financial): 41% of first-year owners, 30% of owners in years three through five.
- They wish they’d put risk management processes in place (things like safety training, equipment warranties and installing fire extinguishers): A regret from 38% of new owners, 20% of established owners.
- Looking back, they wish they’d bought more business insurance coverage: Cited by 26% of new owners, but drops to 14% of established owners.
- They wish they’d bought business insurance sooner: Shared by 23% of new first-year owners and 18% of established owners.
What did new small business owners focus on instead of insurance?
18% of first-year business owners we surveyed didn’t buy any insurance coverage for their business. That’s almost one-in-five owners left on their own if things like an injury, a fire or a break-in go sideways.
Instead of creating a safety net with small business insurance, our survey respondents reported that their biggest priorities were marketing and acquiring customers (46%) and refining their products or services (37%).
While both are a sensible focus, the lack of a safety net can take an emotional as well as financial toll. 72% of new owners said starting a business made them feel more vulnerable.
For many business owners, confidence and business stability is tied to the security of knowing they’re covered if something goes wrong. Not understanding whether they’re covered — or even what coverage they need — can have the opposite effect.
Business owners who bought coverage often didn’t understand what they were buying
82% of business owner respondents had at least some coverage. But that doesn’t mean they understood their coverage or how it protected them. For example, they may have bought a general liability insurance policy without understanding it because it was required by a client, a vendor or a commercial lease.
Many of those without insurance coverage said they “didn’t need it,” often because they were the sole proprietor of their company. Small businesses often underestimate the risks that businesses of any size could face. Any business could be sued for poor workmanship or a professional mistake, or something like storm damage could wipe out a business’s full line of products and inventory. 40% of business owners we surveyed said they were surprised by the business risks they weren’t aware of when they first opened a business.
How can small business owners avoid future regrets?
These three tasks can keep you informed and protected.
- Learn about business insurance and what coverages could benefit you. In our survey, 14% of respondents said they have coverage but that they’re unsure of what risks are covered. Explore our guide to small business insurance to learn more about what risks are common for new business owners and how you can protect yourself, or check out our cheat sheet below.
- Review your existing coverage. Just 37% of small business owners review their insurance coverage regularly, according to our survey. Review your policy annually or after every major business milestone, whether you’ve landed a major client, rented a new office or hired another employee. Read your policy language closely to understand whether your coverage contains exclusions and what your deductibles may be. Check your policy limits to see whether they match your true risk and look for gaps in your existing coverage.
- Adjust your coverage and policy limits to meet your needs. Make sure you have adequate coverage to keep your business stable. If you identify gaps in your coverage, increase your policy limits or buy the right coverage to ensure you’re protected.
Business insurance cheat sheet: Get to know the different types
If you’re within the first year of your new business venture — no matter how small or part-time — don’t let your business fall into the statistics of the uninformed. Use this cheat sheet to quickly understand the most common business insurance coverage types and who needs them.
1. General Liability insurance
General liability insurance is often the first type of business insurance many owners buy. It could help cover costs for injuries to non-employees, such as medical bills for a customer who slips on a wet floor at your place of business.** It could also cover costs if you or your employees damage someone else’s property. And it also has coverage for some legal costs related to libel or slander.
General liability insurance can be required for some businesses. It’s often required to rent or lease commercial space, and it may be necessary before signing a contract with some clients or obtaining professional permits or licenses.
Who needs general liability insurance? Commercial general liability coverage is common for most businesses, but especially for restaurants and food service, general contractors and construction, retail and online business, offices and professional services, and cleaners and house cleaners.
2. Professional Liability insurance
Professional liability insurance, also called errors and omissions insurance, or E&O in some professions, is an important coverage for businesses that provide professional services. This insurance could help cover costs if you make a professional mistake that costs a client money. For example, if you’re an accountant and your client accuses you of a miscalculation that causes them to pay a fine, professional liability could help cover your costs and a legal defense — even if you’re found not to be at fault.
Who needs professional liability insurance? Professionals who sell their knowledge or their business services could benefit from professional liability coverage — even those that work alone from home. This could include professions like business consultants, financial professionals, engineers, or real estate professionals.
3. Commercial Property insurance
Unlike general liability insurance that could cover the property your business accidentally damages that belongs to other people, commercial property insurance could help cover the business property that your business owns. This could include your business building (such as an office, cafe, store, shop, workshop or warehouse) and its fixtures, whether you own or lease the space. It could also help cover the contents of a business space, such as office equipment and computers, business furniture, flooring and lighting, custom display shelves, and the products and inventory you use for work.
Commercial property coverage could cover damages caused by events like severe weather, theft, vandalism or fire. You may also get coverage for lost business income if you have to close temporarily for repairs after damages.
Who needs commercial property insurance coverage? If you bought gear, products, inventory or invested in other physical items for your business, this type of business insurance could help protect it. This could include landlords, office workers, retail stores and e-commerce shops, restaurants, caterers and cafes.
4. Workers’ Compensation insurance
Workers’ compensation insurance is required in almost every state if you have employees, and requirements vary state-to-state. Workers’ comp coverage could help cover costs for employees who suffer a work-related illness or injury. It may help pay for medical bills, lost wages during recovery and job retraining, and it can help cover long-term benefits if they’re permanently injured. It can also help cover a business owner if the employee decides to sue after their injury.
Who needs workers’ comp insurance? Businesses in construction, retail, janitorial and food service industries commonly need workers’ compensation insurance to protect employees and fulfill state requirements.
