Small Businesses: Don’t Cut Costs by Paring Insurance

Suzanna de Baca -- Expert Business Source, 12/15/2008 10:24:00 AM

(submitted by Suzanna de Baca on December 11, 2008)

“Can’t we get rid of this professional overhead insurance?” asked a small business owner friend of mine recently. He and his partner were in cost cutting mode and were considering dropping the policy, but I cautioned them to think twice before canceling coverage that could ultimately save them significant amounts of money in an emergency.

Many small business owners are slashing expenses in today’s weak economic environment. While reviewing costs and carefully reviewing budgets are smart moves in any environment, cost control is critical in a downturn. However, being selective about the line items you eliminate can make the difference between success and failure in down times. Insurance can be costly but is a crucial part of risk management in a small business.

Professional overhead insurance is a type of coverage that protects business owners in the event of business interruption. A business interruption might include the extended absence of a key employee, a natural disaster such as a flood or tornado, or even damage to your building that prevents you from conducting business as usual. 

For example, in my homes state of Iowa severe flooding last June caused severe damage to many businesses large and small. Flood insurance covered some of the physical damage. But those businesses which had professional overhead insurance coverage were able to recoup some of the financial losses which resulted from the interruption to their enterprises – not just the physical damage. 

For small businesses, covering the cost of interruptions can be overwhelming. Therefore, while continuing to pay for this type of coverage can costly it can also save you significant amounts of money down the road. Depending on the policy and the issuer, professional overhead insurance might cover rent, utilities, franchise fees, recruiting expenses, and even the cost of replacing a key person for a period of time. 

Suzanna de Baca is president of Private Capital Solutions Group. Securities offered through Broker Dealer Financial Services Corp. Member FINRA & SIPC. Investment Advisor Representative of Investment Advisors Corp., A Registered Investment Advisor. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice