When was the last time you reviewed your business insurance policy? If you’re like many business owners, you may be underinsured without even realizing it. While you might assume your current coverage is enough, gaps in your policy can leave your business dangerously exposed when disaster strikes.
In this guide, we’ll walk through the most common areas where businesses fall short in insurance coverage—and how you can proactively close those gaps.
Understanding Underinsurance: More Common Than You Think
Underinsurance occurs when the limits, types, or scope of your insurance coverage aren’t adequate to fully protect your business. This could mean:
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Not having enough coverage to replace lost assets
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Missing essential policies like cyber liability or professional liability
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Excluding specific risks like flood, earthquake, or business interruption
According to a recent study, nearly 75% of small businesses are underinsured, many of them unaware until they file a claim—and find out too late.
1. Inadequate Property Coverage
Many business owners set property coverage limits based on past valuations or estimates. However, property values, material costs, and labor rates have surged in recent years. If your building or equipment is damaged or destroyed, your current coverage might not reflect replacement costs in today’s market.
How to Fix It:
Get an updated property appraisal and review your coverage limits annually. Consider adding inflation protection to your policy.
2. No or Insufficient Business Interruption Insurance
Imagine a fire shuts down your operation for three months. Can your insurance replace lost revenue, pay rent, or cover employee wages? If your policy doesn’t include business interruption insurance, the answer is likely “no.”
What to Watch For:
Some business owners assume this is standard—it’s not. It’s often an add-on, and coverage limits may not reflect your full operating expenses.
3. Not Having Cyber Liability Insurance
If your business stores customer data, processes payments, or uses cloud-based software, you’re at risk of a cyberattack. Unfortunately, general liability doesn’t cover data breaches, ransomware, or legal costs related to digital threats.
How to Fix It:
Add a cyber liability policy to your insurance portfolio. It’s surprisingly affordable and can save you thousands—or more—in the event of a breach.
4. Outdated Liability Limits
Let’s say your general liability coverage is capped at $500,000. That might sound like a lot—until you’re hit with a lawsuit involving medical bills, legal fees, and court-awarded damages that exceed $1 million.
How to Fix It:
Evaluate your industry’s average claim size and adjust your limits accordingly. Consider umbrella insurance to boost protection beyond your primary policies.
5. Missing Professional or Errors & Omissions (E&O) Coverage
If you offer consulting, design, legal, accounting, or tech services, a single mistake or oversight can lead to lawsuits from dissatisfied clients.
What’s Often Missed:
Many general liability policies do not cover professional mistakes. You need separate E&O coverage to shield yourself from claims of negligence or inadequate service.
6. No Employment Practices Liability (EPLI)
In today’s workplace, even a small business can face a discrimination, harassment, or wrongful termination lawsuit. Defending against these claims—even if false—can cost thousands.
Solution:
Add EPLI to your coverage. It protects against claims made by current or former employees related to workplace practices.
7. Excluding Natural Disasters or Environmental Risks
Most commercial property policies do not cover floods, earthquakes, or pollution-related events. If your business is located in a high-risk area, this is a serious gap.
How to Fix It:
Review your location-specific risks and add riders or separate policies for flood insurance, earthquake coverage, or environmental liability.
8. Neglecting Equipment Breakdown or Utility Coverage
If you rely on refrigeration, manufacturing equipment, or specialized tech, a breakdown can halt operations. Yet standard property policies may exclude these types of failures.
Solution:
Add equipment breakdown insurance or inland marine coverage, depending on the nature of your business assets.
Conclusion: Review Before You Regret
Underinsurance doesn’t just impact your business—it puts your employees, customers, and future growth at risk. The key is not just having insurance, but having the right insurance in the right amounts.
✅ Review your policies annually
✅ Adjust for inflation and business growth
✅ Consult an experienced insurance broker
✅ Add critical coverages based on industry and operational risks
By identifying and closing these common gaps, you can ensure your business is properly protected—no matter what challenges come your way.