What Happens If Your Business Is Underinsured?

Running a business comes with its fair share of risks. While most business owners understand the importance of insurance, not everyone realizes the dangers of being underinsured. Having some coverage is not the same as having enough, and being underinsured can leave your business financially exposed when disaster strikes.

So what does it mean to be underinsured? It typically refers to having coverage limits that are too low to fully cover potential losses. For example, if your building is insured for $200,000 but it would cost $300,000 to rebuild, you’d be responsible for the $100,000 difference. That’s a big gap—and one that could be difficult or impossible to recover from.

The Real Cost of Being Underinsured

The consequences of underinsurance can be severe. If a fire, flood or theft occurs, your insurance may cover only a portion of the damage. That could mean dipping into personal savings, taking out loans or even shutting your doors permanently. Underinsurance also affects liability coverage. If a customer is injured on your property and your policy limit doesn’t cover the full claim, your business could face an expensive lawsuit or judgment.

Businesses often overlook periodic policy reviews, leaving them underinsured as they grow or expand. Buying new equipment, hiring more staff or moving to a larger space all change your risk profile and should prompt a coverage review.

Types of Insurance a Business Might Need

Businesses typically need a range of insurance coverages to help protect against different types of risk. This may include general liability insurance to cover third-party injuries or property damage, commercial property insurance for physical assets such as buildings and equipment, and business interruption insurance to help with lost income during unexpected closures.

Workers’ compensation insurance is essential if you have employees, while commercial auto insurance is necessary if your business owns or uses vehicles. Depending on your industry, you may also need professional liability insurance, cyber liability insurance or product liability coverage. The right combination of policies can help protect your business from both common and industry-specific risks.

Learn More

Make sure your insurance coverage is keeping pace with your business so you can weather any financial storm with confidence. Contact Garlesky Insurance Agency today for a business insurance review.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.