Putting in place the right types and amounts of business insurance is a key part of your company's LIFT risk-mitigation and asset-protection foundation. However, like other foundational business systems, if your business insurance isn't regularly reviewed and updated as your operation grows, your coverage can prove inadequate, putting your business at serious risk in the event you are hit with a lawsuit, judgment, or an unforeseen accident or disaster.
It's typically a good idea to review your company's insurance coverage on an annual basis. But as your business evolves, you should also revisit your policies whenever your company undergoes significant changes involving infrastructure, assets, and personnel.
While there are numerous different events that could necessitate an audit of your company's insurance, the following five are among the most common reasons to immediately review your coverage.
1. Office Relocation Or Renovation
When your company grows, you may need to move your office to a new location or make renovations to your existing space. But unless you review and upgrade your commercial property insurance and general liability insurance, your existing insurance policies may not be sufficient to cover your new property.
If you move to a new location, you'll definitely need to adjust your commercial property insurance coverage to account for the particulars of the new space. For example, your insurance rates can fluctuate greatly, depending on your new office's square footage, building type, the location's crime statistics, safety features, history, and other factors.
2. The Addition Of A New Product Or Service
Launching a new product or service is a great way to increase revenue and grow your operation. But such new offerings also open your company up to the potential for new lawsuits.
If you've recently expanded your product line, you should update your product liability insurance to cover the new items in case they're defective or otherwise harm a customer. You'll also want to review your property insurance to cover the new products in case of theft, damage, or loss while they're stored on your property.
If you make your living by providing professional services and/or consulting, you need professional liability insurance, and your policy will need to be updated to account for your new services. Also known as errors and omission insurance, professional liability insurance protects you against lawsuits alleging your professional services caused a client to suffer damages, arising from actions like negligence, mistakes, and breach of contract.
Such coverage can be essential for a wide range of businesses—accountants, lawyers, real-estate agents, consultants, IT firms, and others. Check with us to find out if you should have such coverage.
3. Hiring New Staff
As your team grows over the years, you'll need to adjust your workers compensation insurance coverage to reflect your current staffing level. Having the proper workers comp coverage is not only a good idea, it's the law, and failing to update your coverage could lead to fines and other penalties.
Another liability consideration when adding new team members is employment practices insurance, which provides protection for lawsuits initiated by both employees and contractors. While this is an often-overlooked coverage, it's actually one of the most important, since employment claims are among the most serious threats to small businesses.
Indeed, studies show that nearly one in every five small businesses will get sued by a team member at some point in their lifecycle. The more people who work for you, the greater the risk of a lawsuit and the higher the resulting damages are likely to be in the event of a successful suit, so you should adjust your level of coverage accordingly as your team expands.
4. Purchasing New Vehicles
If you or your team use a company-owned vehicle, each of those vehicles should be covered by comprehensive commercial auto insurance to protect against liability as well as any injury or damage that might occur to your employees, vehicles, products, and equipment.
If your team uses their own vehicles, their personal insurance may cover them. But for maximum protection, consider purchasing “non-owned auto liability coverage” in case a team member fails to renew their insurance or has inadequate coverage.
5. Changes To Executive Governance
If your company grows large enough or changes corporate structure to add board members and/or executive officers, each person serving should be covered by directors and officers insurance. Such coverage protects executives should they be sued for a decision they made on behalf of the company.
At the same time, consider taking out “key-person” insurance any time you hire a new high-level executive. Key-person insurance is basically life insurance that pays out to your company should the owner, an officer, or another top executive pass away. Such coverage can be invaluable for small companies, which would otherwise collapse in the absence of certain top-tier staff.
We Can Support Your Insurance Audit
Before you sit down with an insurance agent, meet with us. We will evaluate the specific risks your company faces as it expands to determine exactly what kind of insurance you need and what levels of coverage will best safeguard your business assets at every stage of its evolution. Contact us today to get started.
This article is a service of R&R Legal Advisors LLC and Family Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death or incapacity. We also offer services specifically for startups and ongoing businesses, which review all of the legal, financial, and tax systems you need to LIFT your business. Call us today to schedule your consultation.