The Most Expensive Sentence in Commercial Insurance

Why “If It’s Not Required, I Don’t Need It” Can Become a Very Expensive Mistake

One question I hear fairly often from business owners is whether they really need a particular type of insurance if the state does not require them to carry it. It is a reasonable question, especially when you are already managing payroll, equipment, vehicles, rent, materials, and all the other costs that come with running a business.

The problem is that a legal requirement and a business risk are not the same thing. A business can still be financially responsible for an accident, property damage, a lawsuit, or a contractual obligation even when there was no law requiring a particular insurance policy beforehand.

That is why, when I review coverage with a client, I look beyond what is legally required. I want to understand what the business actually does, where the work is performed, who the company works for, whether there are employees or subcontractors, what property and vehicles are involved, and what kinds of losses could realistically affect the business.

A Better Question Is “What Happens If I Don’t Have It?”

Some commercial insurance is required by law under certain circumstances. Other coverage may be required by a landlord, lender, customer, general contractor, or written contract. Then there are policies or coverage options that nobody is specifically requiring you to buy.

That does not automatically make them unnecessary.

The U.S. Small Business Administration recommends that business owners assess the risks their companies face and consider insurance based on the kinds of accidents, lawsuits, property losses, or other events that could damage the business. The SBA also recommends reassessing coverage as the company grows because new equipment, additional operations, and other changes can increase liabilities.  

So instead of asking only, “Am I required to carry this?” I think the more useful question is, “What would happen to my business if this loss occurred and I did not have coverage for it?”

For some risks, the answer may be that the company could comfortably absorb the loss. For others, one serious claim could create a financial problem that is much larger than the cost of the insurance that was declined.

Having Insurance Does Not Mean Every Business Risk Is Covered

General liability insurance is a good example of why it is important to understand what a policy is actually designed to cover.

Commercial general liability coverage can respond to covered claims involving bodily injury, damage to someone else’s property, and certain personal or advertising injuries. It can also include defense costs for covered liability claims. But that does not mean general liability covers everything that can happen to a business.  

Vehicle-related liability generally calls for commercial auto coverage. Employee work injuries are typically handled through workers’ compensation. Professional mistakes may require professional liability or errors and omissions coverage. Property, tools, equipment, cyber risks, and other exposures can involve still other policies or endorsements.  

This is especially important for contractors and other businesses with several moving parts. A company may have employees, trucks, tools, customer property, subcontractors, rented locations, and contractual obligations at the same time. Having one insurance policy does not automatically mean all of those exposures are addressed.

That is why I prefer to look at the business as a whole rather than simply asking whether the owner already has an insurance certificate.

Your Coverage Needs Can Change Even When Your Policy Has Not

A business may purchase insurance when it first opens and then renew the same policies year after year. Meanwhile, the company itself may have changed substantially.

Maybe you hired your first employee or added several more. Maybe you purchased a truck, bought expensive equipment, started using subcontractors, moved into a commercial space, added a new service, or began taking larger jobs. You may also have started working for customers with insurance requirements that did not exist when your original policy was written.

Those changes matter.

The SBA specifically recommends reviewing business insurance as the company grows and discussing changes in equipment or operations with an insurance professional.  

A policy can still be active and still no longer reflect the business you are operating today. An automatic renewal tells you that the policy continued. It does not necessarily tell you that nothing in the business has changed enough to warrant another look.

This is one reason I encourage business owners to review their coverage periodically rather than treating insurance as something they purchase once and then forget about.

Contracts Can Require Insurance Even When the State Does Not

This comes up frequently with contractors and businesses that perform work for other companies.

A particular policy may not be required by state law for your situation, but a customer or general contractor may still require specific coverage before allowing you onto a project. The contract may specify general liability, workers’ compensation, commercial auto, umbrella or excess liability, particular coverage limits, additional insured status, or certificates of insurance.

This is why I like to review the insurance section of a contract when a client is unsure about what is being requested.

There is a big difference between having insurance and having insurance that satisfies the agreement you signed.

If a contract calls for certain limits, endorsements, or types of coverage, it is better to identify that before the job begins.

Buying a policy first and finding out later that it does not meet the contract requirement can create an unnecessary problem.

Florida Contractors Need to Be Especially Careful With Workers’ Compensation

Workers’ compensation is a good example of why business owners should be careful about generalizing insurance requirements.

Florida’s rules vary depending on the industry, number of employees, and business structure. For construction employers, Florida generally requires workers’ compensation coverage when the employer has one or more employees, including certain non-exempt business owners. For non-construction employers, the general threshold is four or more employees. Exemptions can apply in specific circumstances.  

Contractors also need to pay attention to the workers’ compensation status of their subcontractors. Florida’s Division of Workers’ Compensation states that contractors must make sure subcontractors have the required workers’ compensation insurance before work begins. If a subcontractor does not have required coverage for its employees, those workers can become the responsibility of the contractor for workers’ compensation purposes.  

That is not something I would base on what another contractor said or what someone did on a previous job. The actual facts of the business, the workers involved, and the applicable Florida rules matter.

What I Look at Before Recommending Coverage

I do not believe a business owner should automatically buy every policy or coverage option that is presented to them. The goal is not to accumulate as much insurance as possible. The goal is to understand where the meaningful exposures are and decide how you want to handle them.

When I review a business, I usually want to understand questions such as:

• What does the company actually do day to day?
• Where is the work performed?
• Does the business have employees?
• Are subcontractors being used?
• Does the company own or use vehicles?
• What tools, property, inventory, or equipment does it own?
• Does it rent or own its location?
• What do its customer contracts require?
• Has it added services or expanded into new areas?
• What kinds of losses could interrupt operations or create a serious financial burden?

Those answers give me a much clearer picture than simply looking at the names of the policies the business already has.

From there, I can explain where I see potential exposures, what coverage may address them, what the limitations are, and where there may be gaps worth discussing. The owner can then decide what makes sense for the business.

Sometimes Declining Coverage Is a Reasonable Business Decision

There are situations where a business owner understands a particular exposure and chooses not to insure it. That can be a legitimate risk-management decision.

The important part is understanding what you are accepting.

There is a significant difference between saying, “I understand this risk, I know what could happen, and I am comfortable paying for that loss myself,” and saying, “I assumed I did not need the coverage because nobody told me I was required to buy it.”

One is an informed decision. The other is an assumption.

Before declining commercial insurance coverage, I would want to know what type of loss the coverage is designed to address, whether that loss could realistically happen in the business, what the owner might have to pay without insurance, and whether the loss could interfere with the company’s ability to operate.

I would also want to know whether a customer, landlord, lender, or contract requires the coverage and whether another policy truly covers the same exposure. Those are questions worth answering before the decision is made, not after a claim occurs.

What I Want Business Owners to Take Away From This

Legal requirements matter, but they are only one part of an insurance decision.

Some coverage is required by law. Some is required by contract. Some is optional. What matters is understanding the exposure behind the coverage and what could happen financially if that risk becomes a real loss.

My job as an independent commercial insurance broker is not to tell every business owner that they need every policy available. It is to help you understand your options, identify areas that deserve a closer look, compare coverage where appropriate, and make a decision based on better information.

If your business has changed, you have had the same insurance program for several years, or you are simply not sure what your current policies actually cover, it may be worth reviewing them before the next renewal or the next contract lands on your desk.