Why Your Business Insurance Is Essential During A Recession

The epidemic of COVID-19 has slowed economic activity. Have you responded by reducing expenditures? If so, be wary about eliminating necessary insurance coverage.

Has your income decreased so you cannot pay your bills? Are you burning through your money so quickly that you're concerned you won't have any left in a few weeks or months? Have no fear; you are not alone. You can take preventative actions to assist your company in weathering the storm.

To this aim, many small business owners scrutinize their spending budgets to determine where savings might be made. You may have subscribed to a corporate computer application that you no longer utilize. Alternatively, you may be able to save money on office supplies or professional affiliations. Even modest expense savings can have a cumulative effect, prolonging the amount of time a business can operate with fewer or no sales.

As part of your efforts to reduce non-essential spending, you may have contemplated canceling your E&O (or professional liability) insurance. This might save you hundreds of dollars annually that could be applied to office rent or wages (if you have employees). However, before doing so, you should compare the possible cost savings against the drawback of having no defense against client litigation. Here are some considerations:

Is E&O Insurance (or professional liability insurance) A Necessary Expense?

Numerous small-business consultants concur. It provides funds to pay legal judgments and settlements resulting from consumer disputes. Without this money, you would have to cover your legal fees, putting your business and personal assets at risk of bankruptcy. Experts recommend placing company insurance in the same category as health insurance, i.e., something that must be maintained at all costs. E&O or professional liability insurance is similar to health insurance because it helps your organization remain financially stable for many years.

There is never a good time to lack health insurance. However, now is a very poor time. As a result of the likelihood that the U.S. economy may enter a catastrophic recession or worse, your clients will soon experience increased financial strain. They may be unemployed and consuming their funds at an alarming rate, just as you may be experiencing financial difficulties. When this occurs, clients may look to additional sources of revenue, such as your professional liability insurance policy, for compensation. The majority of customers will not behave in this manner. However, a desperate person may clutch at any straw to generate income.

In reality, the severity of the financial crisis will increase the number of liability claims faced by small enterprises. An increase in disputes frequently accompanies a recession. If the economy deteriorates, more transactions may fail, more contracts will be voided, and more workers will be laid off. In this climate, the last thing you should do is discard your insurance coverage.