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I love how my editor picks unique topics for me to write about and research. This assignment is certainly no different. For this edition we focus on cheap business / commercial insurance. Like so many insurance topics, this is a seriously large pot with many ingredients.

I’ve included some information and feedback received from three commercial insurance friends. These individuals understand the complexities of commercial coverages and deal with them every day. My thanks and a huge shout-out to Dave Adams in Alaska, Gary Hetzel in Minnesota and David Backs in Florida. Thank you, gentlemen!

The phrase “cheap business insurance” gets many hits on Google, the majority of which are insurance company, agency and brokerage advertising. So where-oh-where is a non-insurance savvy business owner to start his or her quest to buy coverage?

One of the first research sites I visited stated, “You may not want to pay for a complicated and extensive commercial insurance policy, but you may still want the peace of mind of having some protection nonetheless…” Wow. Really?

Sadly, this is how many insurance buyers start. Some business owners simply want to pay the absolute minimum price for the absolute minimum coverage. These are often the minimum limits required by law. As a result, these business owners fail to assess exactly what their loss potential is, thus exposing themselves and their companies to unplanned costs - or worse.

As a small business owner, I review my insurance policies annually. I always think, “Geez, can I lower my premium by reducing coverage?” The answer is actually “yes”, but my inner insurance geek always stops me from doing so because “cheap” can turn out to be very expensive. I often assess other changes that may allow me to remain insured at a proper level but will lower my premiums (e.g. higher deductibles).

One relatively expensive commercial insurance policy is my company’s professional liability. For a service provider, this policy is critical. It’s necessary not because I’m worried about making a huge mistake and therefore needing it. It is needed because I can be sued even if I do absolutely nothing wrong and defending a lawsuit is an incredibly pricey proposition - so expensive that it could bankrupt me and put me out of business. Although the likelihood of a lawsuit is indeed remote, I still need the coverage because I do not gamble with my livelihood. Cheap insurance websites or sales folks may not advise me of this issue.

Some business owners simply hunt for the newest online options and pick out the least expensive price. These are typically policies and coverages for their business vehicles, business property and business liability. These may be offered as very low-limit options that may or may not be sufficient and may or may not provide appropriate coverage for the exposure a business owner faces. I can think of no better place to apply the adage, you get what you pay for.

Many inexperienced business owners assume that a standard Business Owners Policy (BOP) and a Business Auto Policy are all that they need. These types of policies are available online, with way too many sales taglines focusing on “low price” rather than on selling all necessary coverage to protect a buyer’s true exposure. In today’s world, these two policies alone are not sufficient protection for most businesses.

Realistically most of us (business owners) are simply not knowledgeable enough to purchase business insurance without advice and guidance from an insurance advisor. Typically this will be an agent, broker or insurance company employee who specializes in commercial insurance.

The cheap business insurance website or salesperson may not give you all the information necessary to make a wise buying decision. Here are examples of information a business owner should understand when determining which insurance policies and coverage options to purchase.

• Do you have a professional liability exposure?
• Do you understand the difference between a claims-made and an occurrence policy?
• Do any of your polices need a retroactive (retro) date?
• Do you need prior-acts coverage?
• For your business property, should you purchase blanket and/or agreed value coverage?
• Do you know the difference between Actual Cash Value (ACV) and Replacement Cost coverage?
• For your buildings, is anyone helping you calculate accurate ACV and replacement cost values?
• Will you need equipment breakdown insurance?
• Do you have employees?
  • If yes, should you purchase Employment Practices Liability (ELPI) Coverage?
  • If yes, are you aware of all available add-on options?
  • Should you purchase Employee Dishonesty coverage?
• Do you have cyber liability, electronic data breach or fraud exposures? (hint: most likely!)
• Should you purchase identity recovery coverage? It’s not just for individuals anymore.
• Do you know what Business Income, Extra Expense or Loss of Rents coverages are? These can be critical to protecting your business in the event of a loss.

In summary, unless you’re getting good counsel on your business exposures, there may be many drawbacks to simply purchasing the cheapest business insurance options. Several include:

• Not purchasing the correct policies
• Not purchasing necessary coverages
• Not purchasing sufficient liability limits
• Not purchasing sufficient property limits

Each of these can end up exposing a business owner to very significant “coverage gaps” which will most probably remain undiscovered until too late – until after a loss has occurred and after the damage is already done.

Jonathan Farris is a retired insurance executive and president of InsuranceRescue Services, LLC, a property & casualty insurance consulting firm based in Madison, Wisconsin. Mr. Farris can be reached at jon@insurancerescue.com.