How Much Insurance is Enough?
Clients often ask me how much liability insurance they should carry. Do I recommend an umbrella? Do I think they have enough insurance?
These are difficult questions to answer. If I had a crystal ball about how much they might be liable for during the lifetime of their business, I would have long ago retired.
That said, there are several questions that I will pose to help find the answer.
What stage are you at in your business?
If a business is in its early stages and struggling to get off the ground, it probably can't afford to buy higher limits of liability. Young businesses are often burdened with debt and have fewer assets to protect. A young business is forced to take greater risks and forego more protection.
A more mature business that has an established clientele and has paid down its debt has more to protect. I recommend increasing coverage and purchasing healthy umbrella policy limits for businesses in this stage.
What is the potential for a catastrophic accident?
I portray a catastrophic accident where a business can envision being liable for a person being severely injured or potentially more than one person being severely injured in one accident.
A good example of a potential catastrophic accident is a company that owns a fleet of tractor trailer rigs. A fast moving truck has the potential to cause serious damage. Another might be a manufacturer of power equipment.
A small retail store or office generally has low potential for a catastrophic claim. I obviously recommend higher limits of coverage for those with higher potential for large losses.
What is your tolerance for risk?
Some business owners would rather not spend the money on increased protection, while others keep a close watch on their coverage and policy limits, making sure they are well protected.
It's our job to help you make an informed decision. You need to have an understanding of the risks associated with your business and the cost of insurance to protect them.
Insurance protection is only one form of risk management. An active, comprehensive safety plan is equally important in reducing risk and keeping costs down. In addition to adequate insurance limits, we can provide help in designing your company's safety plan. Call us, we'd love to hear from you.