Every small business owner worries about costs. But the biggest mistake most make isn’t paying too much — it’s being underinsured.
Too many local businesses only find out when it’s too late that a “cheap” policy can cost a fortune.
A Buffalo Story
A neighborhood bakery thought they were covered. They bought a bare-bones business policy at a rock-bottom rate.
Then a frozen pipe burst one January night, flooding the shop. The damage: $40,000. The payout: $10,000 — thanks to a buried “water damage sub-limit.”
The owner was left covering the other $30,000 out of pocket. It nearly shut them down.
That’s not rare. A Hiscox study found 75% of small businesses are underinsured, often by 40% or more. Nearly 40% haven’t updated their coverage in a decade. Running 2025 operations on a 2013 policy is like still using a flip phone plan for a smartphone business — it doesn’t fit your life anymore.
Why It Happens
1. Chasing the Lowest Premium
Cash is tight, especially early on. So it’s tempting to take the cheapest quote. But cheaper usually means lower limits or more exclusions. A “deal” that doesn’t pay when you need it isn’t a deal at all.
2. Not Understanding the Coverage
Insurance can sound like a foreign language. About 70% of owners don’t fully understand their policies, according to Hiscox. So they “set it and forget it” — until a claim exposes the fine print.
3. Business Changes Over Time
You start with $50k in inventory, and now you’ve grown to $200k, added delivery, maybe a second location. If your policy still covers the old numbers, you’re underinsured.
4. The “It Won’t Happen to Me” Mindset
It’s easy to think disasters only hit big companies. But the odds say otherwise: 40% of small businesses will file a property or liability claim within 10 years, and 15% will have a water or freeze damage claim averaging $17,000, per The Hartford.
Common Coverage Gaps That Hurt
Property Value
Rebuild costs have surged. Nationally, commercial properties are underinsured by about 40%, reports MSCI. After Buffalo’s 2022 blizzard, several businesses learned the hard way that old building limits didn’t match post-storm construction prices.
Business Interruption
This covers income and expenses if you’re shut down after a covered loss. Many skip it — or buy too little. The bakery above didn’t have it, and a month of repairs nearly broke them. Include it, and make sure the coverage period (12–24 months) matches real rebuild times.
Liability & Exclusions
Cut-rate liability limits (like $500k) can vanish after one bad accident. Aim for at least $1M per occurrence, and review exclusions:
- Consultants need professional liability (E&O).
- Contractors often need endorsements for “work at heights” or “faulty workmanship.”
- Businesses handling customer data need cyber coverage — especially since 60% of small businesses hit by a cyberattack close within six months, per Cybercrime Magazine.
Never Updating Coverage
Growth brings new exposures — vehicles, employees, locations. A tech startup we met had $200k in new equipment but never raised its $50k property limit. When a theft hit, they got pennies on the dollar.
How to Fix It
1. Review Annually.
Sit down with your agent once a year. If they’re not proactive, ask them — or call someone who will be.
2. Update What’s Changed.
- Property: Adjust for today’s rebuild costs and new assets.
- Business Income: Add or extend coverage periods (consider supply chain risks).
- Liability: Ensure you have general, product, and professional coverage as needed — plus an umbrella if you have assets to protect. Ninety percent of businesses face a lawsuit at some point (Zippia).
- Workers’ Comp: Required in New York if you have employees. Update payroll and classifications annually.
- Commercial Auto: Personal policies rarely cover business use. Add non-owned auto liability if employees run errands in their own cars.
- Specialty Coverages: Depending on your industry, look into Inland Marine, Crime, or Flood insurance. (Standard policies exclude flood damage — and Buffalo snowmelt can surprise you.)
3. Balance Cost vs. Risk.
If your business couldn’t survive an uncovered loss, that coverage is worth every penny.
Local Example: Catching Gaps Before They Bite
We work with Buffalo and Western New York businesses every day, and we see the same patterns:
- A retail shop with $50k inventory coverage when they actually carry $100k in stock.
- A manufacturer who started making new products during COVID but never updated their liability forms.
- A food truck with coverage for the truck but not the income if it’s sidelined for repairs.
In each case, small tweaks fixed big risks.
That’s what a proper review does — not upselling, just making sure you don’t lose what you’ve built.
Protecting Your Business’s Future
The #1 threat to a small business isn’t paying a bit more for insurance — it’s being blindsided by what’s not covered.
FEMA estimates 40–60% of small businesses never reopen after a disaster. Don’t let underinsurance be the reason yours doesn’t.
If you haven’t reviewed your policy in the last year (or since you moved, grew, or added staff), now’s the time.
Get a coverage check.
We’ll translate your policy into plain English, flag weak spots, and show how to fix them. No pressure — just clear advice from people who’ve seen what happens when businesses face big losses without the right backup.
Because the time to discover a gap isn’t during a claim — it’s before one ever happens.
Fetter Agency 