There are nearly 31 million small businesses nationwide, and it’s estimated that three-quarters of them have either not enough commercial insurance or no coverage at all. Does this surprise you?
The official definition of a small business is a company that employs fewer than 500 people. Most companies that fall into this category, however, are much smaller than that. About 90 percent of all small businesses employ 20 or fewer employees and more than 70 percent of all small businesses are owned and operated by a single person! Research shows that the smaller the company, the less likely they are to have adequate insurance coverage — or any at all.
Home-based businesses are probably the most common type to have no insurance at all. Half of all small businesses in the United States are based in a home. Many owners of home-based businesses do not realize that their personal insurance coverage, such as homeowners or renters insurance, does not cover any of their company’s belongings or activities.
The top claims made by small businesses include burglary/theft and damage to property caused by perils such as water, wind, hail, fire and freezing temperatures. Another top source of claims: Legal claims made by customers, including those injured at the company’s place of business. A BOP, short for Business Owners Policy, combines vital business property and liability coverage into one convenient and affordable policy and can be an ideal solution for home-based businesses and other small firms.
Another overlooked coverage: E&O insurance. Any type of small business that provides a service should have Errors and Omissions insurance. Yet many entrepreneurs and business owners who need this type of coverage don’t realize they need it or think it’s too expensive. One professional liability claim, however, can financially devastate a small business.
Business continuity is yet another area in which small businesses fall short. About 70 percent of new businesses survive the two-year mark and half survive the five-year mark. But only one-third of all companies remain in business after 10 years. One of the biggest sources of business failures is a lack of planning for the unexpected. Businesses that have a plan for unexpected events have a much higher survival rate than those that don’t. According to the U.S. Small Business Administration, 40 percent of businesses never reopen after a disaster. Most of those that go out of business did not have enough insurance, the right coverage or any coverage at all.