Key Takeaways:
- While insurance is a valuable financial tool in protecting a business owner’s enterprise value and personal assets, nearly one-third of owners do not carry any coverage.
- In addition to core policies like commercial general liability insurance, specialized options, like cyber liability, can help protect unique or service-based professions and businesses with digital liability.
- More than a line item, insurance is a strategic financial tool business owners can use to preserve cash flow, enhance market valuations, and safeguard against the unexpected.
Data shows many business owners treat insurance as a discretionary expense: one-third of small business owners don’t carry any coverage,1 and 77% are underinsured.2 Insurance is essential in helping your business guard against personal liability, loss of income from injury and lawsuits, and more. More than just a line item, it’s a risk management tool that helps protect you personally and professionally.
We understand adding new costs can be challenging for business owners — especially when they don’t appear to deliver immediate tangible value. However, not all costs are created equal, especially when it comes to protecting you and your business.
As financial advisors in San Diego specializing in services for business owners, we’ve seen how gaps in coverage can put businesses at undue risk. In this blog post, we’ll explore business insurance must-haves, thoughtful add-ons, and specialized coverage options to help determine your next steps.
What Insurance Is Essential for Businesses?
If you feel you’re underinsured or don’t know where to start when selecting business insurance, there are a few core options considered essential for almost every business.
#1 What Is Commercial General Liability Insurance (CGL)?
If you have a physical location or interact with customers, you likely need commercial general liability insurance (CGL). CGL will protect you and your business from third-party claims of bodily injury, slander, libel, or other damages related to your business. For example, if a customer is injured after a slip in your store, or you’ve been sued for copyright infringement, CGL will protect your business assets by covering expenses such as attorneys’ fees, court costs, and medical care for the injured party.
#2 What Is Commercial Property Insurance?
If you own or rent physical business assets, like a building, furniture, or equipment, you likely need commercial property insurance. In the event of theft, vandalism, fire, or damage from extreme weather such as hail or lightning, this insurance will cover the cost to replace damaged property and income if you’re out of service temporarily. Be sure to review your coverage and consider adding coverage for excluded perils, such as floods and earthquakes.
#3 What Is Workers’ Compensation Insurance?
If you have one or more employees, workers’ compensation insurance is essential and often required by state law. Unlike the other coverage options listed above, workers’ compensation covers medical expenses, lost wages, and rehabilitation costs for employees who suffer a work-related injury or illness. Alongside employee retirement and benefits programs, workers’ compensation helps protect both businesses and employees. It supports injured employees during recovery and guards against costly lawsuits related to workplace injuries. State requirements vary, so be sure to check your local regulations to maintain compliance.
#4 What Is a Business Owner’s Policy (BOP) Smart Bundle?
A business owner’s policy (BOP) is a cost-effective combination of coverages, including general liability, commercial property, and, in many cases, business interruption (income) insurance. It is often a suitable solution for a low-risk, small-to-medium-sized business; however, an insurance professional can help you explore any additions that may serve you and your business.
Which Specialized Liability Policies Are Essential for Safeguarding Specific Business Risks?
In addition to physical damage, your business may face other specialized risks based on your service or industry, and the following coverage options can help guard against potential financial setbacks.
What Is Professional Liability Insurance?
If the foundation of your business relies on intellectual property (e.g., your expertise or proprietary processes), professional liability insurance, also known as errors and omissions (E&O), can help protect your business financially against claims that your advice caused a client financial — not physical — damages, due to negligence or a mistake, for example. Typically applied to service-based business owners such as CPAs, financial advisors, and software developers, E&O can significantly mitigate the risk of costly litigation, reputational damage, and more.
What Is Cyber Liability Insurance?
If you have a digital footprint or operate a remote business, a single data breach can not only affect business continuity but also be financially devastating and almost impossible to recover from without cyber liability insurance. The coverage typically includes:
- First-Party Costs: Your expenses as a business owner, such as forensics, investigation, and public relations efforts. It can also cover non-budgeted expenses related to regulatory fines and loss of future revenue.
- Third-Party Costs: Expenses related to liability claims from customers.
What Is Commercial Auto Insurance?
If you operate a business that uses a vehicle or fleet, commercial auto insurance can help protect against operational risks and safeguard your personal assets. Even if you or an employee use a personal vehicle for business, this is crucial in maintaining the “corporate veil,” or the legal separation of business and personal liability, which is often overlooked. An insurance professional can help you verify whether you’re sufficiently covered, considering the total value of your vehicles and how frequently you or your employees drive.
What Contingency Strategies Are Necessary to Safeguard Your Revenue Streams?
There are situations in which the following thoughtful insurance add-ons are necessary to help ensure financial continuity in the event of an operational or revenue disruption.
What Is Business Interruption (Income) Insurance?
If a covered disaster impacts your business and you need to temporarily close, business interruption insurance can help you cover your standard operating costs, such as your mortgage and payroll, and replace lost income. Your policy will include a calculation note that factors in your fixed operating expenses (typically over 12 to 18 months), revenue projections, and other recovery-related expenses, such as renting a building temporarily.
Beyond cash flow, this coverage helps protect your business’s value during recovery so you don’t lose momentum. This is critical, as a closure can have long-term effects on your market position, customer base, and ability to remain open.
What Is Employment Practices Liability Insurance (EPLI)?
Unlike workers’ compensation for physical harm, employment practices liability insurance (EPLI) covers costs, such as legal fees and settlements for lawsuits from employees — past, present, and future — arising from claims including harassment, wrongful termination, and discrimination. As employment laws evolve, this coverage benefits business owners by helping them reduce human capital risks, as costs related to these claims can quickly drain capital.
What Is Commercial Umbrella Insurance?
If you have high liability exposure or significant assets, commercial umbrella insurance can help mitigate catastrophic losses. The coverage acts as a buffer and contingency reserve, providing $5 to $10 million in coverage above your primary policies. Businesses with higher liability, such as restaurants and healthcare providers, can use this reserve in the event of a multimillion-dollar verdict, medical expenses, or other significant damages that would otherwise require them to pay out of pocket or sell assets.
Strategic Insurance Review: How Can Business Owners Align Coverage with Financial Goals?
Risk management is an ongoing, strategic process that business owners should evaluate with their financial and insurance teams. Here are a few areas to review to help ensure your insurance strategy is integrated with your overall financial plan.
How Can Business Owners Evaluate Insurance Coverage Decisions?
To help align your coverage with your financial goals, discuss your insurance plans with your financial advisor so they’re purchased in an integrated way, not in isolation. Professionals can help you determine various strategies to manage your costs, including buying a high-deductible plan with lower premiums, especially if you have a stable business.
To ensure sufficient coverage as your business evolves, review your coverage limits annually with your advisor and insurance agent, particularly as your employee headcount, assets, and revenue change.
What Is Your Business’s Maximum Tolerable Loss (MTL)?
Calculating your business’s maximum tolerable loss (MTL) is fundamental in determining how much insurance coverage you need. Your business’s MTL is the maximum loss the business could absorb out of pocket without putting it at risk.
Your insurance coverage should protect the gap between what you can afford and an amount that would threaten your business. For example, if your business could sustain a $250,000 loss but a legal claim reaches $1 million, your insurance would protect the remaining $750,000. Your insurance agent can look at various areas of your business to help determine your MTL, considering plausible worst-case scenarios, to help ensure you’re not overinsured or underinsured.
Why Is Insurance a Due Diligence Requirement?
Ensuring you have sufficient insurance is critical in various business situations. For example, many lenders and banks require minimum insurance requirements before approving loans, which is essential for accessing capital. Additionally, if you’re planning to sell or undergo a merger or acquisition, a robust insurance plan signals a low-risk profile and sound governance, enhancing your valuation or saleability to buyers. In these cases, insurance is not just an expenditure but a tool required to grow or exit your business.
How Can Business Owners Create the Ultimate Financial Safety Net?
Continuing to treat insurance as a simple line item overlooks its true value: protecting what you’ve worked so hard to build. Insurance is a strategic tool that can help preserve your cash flow, enhance your business’s value, and offer flexibility when the unexpected occurs. If you don’t yet have insurance or think you’re underinsured, we encourage you to request a Business Risk Audit with one of CCMI’s qualified independent advisors.
At CCMI, we specialize in financial guidance for business owners at every stage, from seed to maturity. To learn more about how we support business owners, contact us, and be sure to download our resource, “Life Cycle of a Business Owner.”
Sources:
1 Chan, W. (2024, January 30). 90% of small business owners aren’t confident that they are adequately insured, according to survey. Next Insurance. https://www.nextinsurance.com/blog/survey-small-businesses-lack-confidence-adequate-insurance/
2 Hiscox. (2025, November 10). Nearly Four in Five Small Businesses in the U.S. Aren’t Protected Against Claims. Hiscox. https://www.hiscox.com/articles/hiscox-nearly-four-five-small-businesses-us-arent-protected-against-claims
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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