10 Insurance Gaps Most Small Businesses Miss (And How to Fix Them)

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1. No Business Interruption Coverage

You may have commercial property insurance to cover damages and losses to your business property, contents, and inventory, but if you’re forced to close temporarily for repairs because a fire damaged the building, how can you keep up with operational expenses?

Fixed costs like rent, utilities, and payroll continue – and your business loses income every day it’s closed.

How to fix this: Add business interruption insurance to your commercial property insurance policy. Some commercial property policies include business interruption coverage, but not all. If it’s not included, it can be added.

2. Neglecting Cyber Liability Insurance

The world wide web has become much wilder. Almost all small businesses operate online or accept digital payments from their customers.

Cyber-related threats are always evolving, yet according to the Insurance Bureau of Canada, 69% of Canadian small business owners don’t consider cybersecurity a financial priority.

Ignoring cybersecurity risks can be a costly mistake for small businesses. Not accounting for cyber threats in a business insurance policy makes it worse if you suffer a data breach or online attack. 

How to fix this: Include cyber liability insurance in your policy. Cyber liability insurance covers financial losses from data breaches, ransomware attacks, and cyber extortion, and provides funds for software restoration, data retrieval, notification and credit monitoring fees, and legal defence expenses if you’re sued.

3. Forgetting Errors and Omissions (E&O) Insurance

General liability insurance protects against common claims, but it won’t cover professional mistakes or bad advice.

How to fix this: Errors and omissions (E&O) insurance – or professional liability insurance – is necessary for any business or professional providing advice or professional services (such as consultants, accountants, and general contractors).

E&O insurance covers a business’s professional services, including mistakes, errors, incorrect advice, and professional negligence.

4. Inadequate Property Coverage Limits

Commercial property insurance is a must-have to protect business property, contents, and inventory.

However, many business owners may underestimate the cost of rebuilding or replacing property after a loss. Commercial property policies can be based on actual cash value or replacement value.

Actual cash value property policies are based on a property’s current market value minus the depreciation due to its age and condition from its original price.

Replacement cost property policies pay to replace or repair a damaged property with new items of similar kind and quality without deducting for depreciation. 

How to fix this: Annually assess and track the value of your business property, contents, and inventory. When selecting coverage, evaluate your property’s insurance needs, your business’s risk tolerance and budget, and the impact of depreciation if you own the property.

5. Assuming Homeowner Insurance Covers Home-Based Businesses

A homeowner or condo insurance policy covers unexpected events, such as fire, that might affect your residence.

However, most homeowners insurance policies exclude coverage for home-based business liability claims, and your home insurance policy could be voided if your insurer doesn’t know you’re running a home-based business.

How to fix this: Invest in a home-based business insurance policy. It typically includes a wide range of insurance coverages – commercial property, product liability, general liability, professional liability – and features higher coverage limits. 

6. Thinking Personal Car Insurance Covers Business Vehicles

Commercial auto insurance is essential for businesses that rely on vehicles for daily operations in Canada. However, not all auto insurance policies are alike, and there are differences between private-passenger auto insurance and insurance for business vehicles.

Spoiler alert: Private-passenger car insurance, or personal auto insurance, is not designed to cover vehicles used for commercial purposes.

How to fix this: Get a commercial auto insurance policy. It’s similar to private-passenger car policies but includes higher coverage limits, covers a broader range of vehicles, extends coverage to multiple employees, and meets regulatory requirements for specific industries (like construction and snowplowing or landscaping).

7. Not Having Product Liability Insurance

You are what you sell. You’re also liable for what you sell.

Retailers, e-commerce businesses, restaurant owners, and independent online sellers are legally responsible for any product they manufacture, distribute, or sell, including food.

For example, if contaminated food causes a customer to become ill or a defective electronics product ignites a fire in a customer’s home, you could be sued for damages.

How to fix this: Include or get product liability insurance in your business policy. Some general liability insurance policies may automatically include this coverage, but check to ensure you have it. If you don’t, add it to your overall coverage.

8. Skipping Umbrella or Excess Liability Insurance

Imagine filing an insurance claim for losses or because you’re facing a third-party lawsuit, but your policy’s limit is exceeded. What now?

If you don’t have what’s called umbrella insurance, you’ll have to pay the balance out of pocket. Umbrella insurance (also called excess liability insurance) extends protection to your existing liability coverage limits. It acts as an extra layer of security when liability claims go beyond standard policy limits.

How to fix this: Consider adding umbrella insurance to your overall policy. Some businesses or professions needing this coverage include construction, hospitality, manufacturing, and professional services firms.

9. Not Protecting Portable Tools and Equipment

If your business or profession requires you to travel to various customer locations, and the tools and equipment you need to do your job are stolen, vandalized, or damaged by fire, water, or a natural disaster, you could be out of commission until they’re replaced.

How to fix this: Get tools and equipment insurance to cover replacing or repairing portable tools, gear, and electronics.

10. Considering Contractual Liability Insurance

When a business owner inks a contract with a customer or another organization, they’re assuming responsibility for any claims for third-party bodily injuries and property damage that may arise.

In essence, it requires you to pay the cost of a claim according to the terms of the contract you sign (including leases).

How to fix this: To protect against claims tied to signed agreements or leases, add contractual liability insurance to your policy. It can be added to a general liability insurance policy as an endorsement.

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