It Can Happen to You: Real Scenarios That Destroy Uninsured Businesses

Business.com / Insurance / Last Modified: February 22, 2017

Think you don't need business insurance? Think again. Here are 7 examples of how your business could be destroyed without it.

Small business owners often place their life savings into their businesses and pour their lives into building an asset that can nurture future generations.

The headlines have been full of unplanned circumstances that have devastated small business concerns overnight and those without insurance are left to pick up the pieces if they can. Whether it’s extreme weather, civil unrest, inopportune circumstances, or plain bad luck, businesses can face events that threaten their viability.

With proper business insurance, your enterprise won’t be alone when faced with challenges like these:

Related Article: To File or Not to File: A Business Insurance Claim

1. Harm to a Physical Location or Inventory

Fires and burglaries happen everywhere, as do wind and water damage, mold, and other natural situations. You can use best practices to try to avoid these situations like avoiding flood zones, installing security systems, and avoiding hazardous possibilities, but even the most conscientious entrepreneur can stumble into unforeseen circumstances or just be in the wrong place at the wrong time.

With business property insurance, you can file a claim and know that your assets are protected. Without it, you may face an expensive out-of-pocket struggle to get back to square one.

How to reduce your risk:

  • Have a contingency plan for natural disasters.
  • Keep important digital data backed up in the cloud.
  • Explore business property insurance, and make sure it covers natural disasters. Not all do.

2. Harm to Key Personnel

Many small businesses rest on the efforts of one or two key figures who have the contacts, the reputation, or the knowledge to keep the business thriving.

If your business depends on indispensable figures like this, how will your business fare if injury or illness incapacitates those star contributors? Key person insurance can help create breathing room while your principal heals or in the unthinkable event that you have to find a replacement.

How to reduce your risk:

  • Develop a plan on how you'd operate without that key figure. Who will be in charge?
  • Train someone in your role who can take over on your behalf.
  • Look into key person insurance as a means of protection in case of emergency.

3. Theft

You might be surprised that the thieves you need to worry about aren't necessarily located outside of your company; in fact, 30 percent of business failures are caused by employee theft.

Whether it's a few packs of printer paper here or there, credit card fraud, or money that's being taken from the till, over time, employee theft can cause serious damage to your brand and bank account.

How to reduce your risk:

  • Install security cameras throughout your location.
  • Instill the importance of honesty with employees, and make sure they understand there are dire consequences for theft.
  • Look into commercial crime insurance, as it's the one protection you can have against theft, internally or externally. 

Related Article: 9 Ways to Save Money on Business Insurance

4. Loss of Business Income

If your business suffers from a situation that prevents you from earning income, such as a repairing extensive damage from fire or other disasters, replacing difficult-to-obtain equipment or materials that were stolen or damaged, or even clean-up from a mishap caused by deferred maintenance, how long could your business survive without income?

It might take a few days or even weeks, but even the most robust business requires a minimum daily income to survive. Business interruption insurance can help with those daily costs like salaries, rent, and other incidentals to make sure that your business is raring to go once you finish rebuilding.

How to reduce your risk:

  • Build your savings account so you have funds in the event that you are not earning an income.
  • Map out a plan for how you would recover if an essential piece of equipment were not functioning.
  • Buy business interruption insurance to cover incidentals and keep your business operating.

5. Misunderstandings With a Client

Most business owners appreciate their customers, but even the best relationships can go sour when misunderstandings enter the picture. Professional liability insurance and general liability insurance are available to small business owners to protect against instances when a customer believes that they’ve been harmed by your business or if a client concludes that you haven’t fulfilled your responsibilities.

In either case with proper coverage, you’ll have a team of professionals working in your best interest instead of fielding calls from attorneys on your own.

How to reduce your risk:

  • Always get a contract signed by your client up front.
  • Bring in an arbitrator if the disagreements get serious.
  • Invest in professional and general liability insurance to cover court costs, should you be summoned.

6. Damage Caused by Owner or Employee

It could be as innocent as driving a delivery vehicle into an inconspicuous retaining wall or leaving a tap on overnight. Even the most prudent person can bring about a debacle.  With so much to do, it is easy to get distracted and overburdened. With commercial vehicle insurance and general liability insurance, you’ll be protected from the absurdities that befall us all.

How to reduce your risk:

  • Train your staff on preventive measures to avoid accidents.
  • Only have employees you trust implicitly drive company vehicles.
  • Investigate company vehicle and general liability insurance to protect your company.

Related Article: What Happens When Your CEO Dies? Why You Need Key Man Business Coverage

7. Cyber Attacks

Cyber attacks may be a relatively new threat to the business landscape, but they affect much more than just giant corporations. Cybercrime costs $100 billion in the US alone each year, and yet, 90 percent of small businesses are not protected.

How to reduce your risk:

  • Install firewalls and virus protection software
  • Monitor employees' use of websites
  • Purchase cybersecurity insurance

Being aware of situations that can jeopardize your uninsured business can be enough to spur you into action and get you the coverage you need.

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