Published: 2008-03-26

Understanding Small Businesses Insurance Needs

By Editorial Staff of NAIC

Many small businesses are exposed to serious risks that could be mitigated by a better understanding of their insurance options according to research from the National Association of Insurance Commissioners (NAIC).

As April 21 kicks-off Small Business Week, the NAIC is helping to inform small business owners on how to better protect themselves, their business and their employees through Insure U for Small Business (www.insureUonline.org/smallbusiness), an online public education program that provides tips on six categories of vital information to small businesses: workers' compensation; group health and disability; business property and liability; commercial auto; group life and key person life; and home-based business insurance.

Key findings of the NAIC research also reveal:

Only 59 percent of small businesses with fewer than 20 employees have workers' compensation insurance, which state law requires for most companies. Workers' compensation insurance protects business owners from claims by employees who experience a work-related injury or illness.
Only 35 percent of small businesses have business interruption insurance, which covers expenses like payroll and utility bills that often continue after a major event (e.g., a fire or storm) shuts down a company. Because rebounding from a disaster can take a considerable amount of time, small businesses need to understand this risk and the available insurance options.
While 71 percent of small businesses say they are very dependent on one or two key people for their success and viability, only 22 percent have Key Person life insurance, a type of policy that enables a business to weather the death of a key employee or buy out the key person's heirs if ownership rights are involved.
Among home-based businesses -- 22 percent of the NAIC survey -- 48 percent depend on their homeowners insurance to protect their businesses. However, most homeowners insurance policies severely limit coverage of business property and may totally exclude business-related liability claims.