Think of Insurance as Predictable Cost vs. Company-Ending Surprise

Insurance trades an unpredictable, potentially devastating expense for a steady, planned payment. If the odds of a particular claim are 1 in 20 and the likely cost is $80,000, your expected annual exposure is about $4,000. If a policy costs less than that and genuinely covers the risk, the math works. The goal is preventing one bad day from becoming your last day in business.

Policies That Matter Most for Employers

Employment Practices Liability (EPLI). Covers lawsuits over hiring, firing, harassment, and discrimination claims. Strongly consider this once you pass 10 employees—a single dispute can easily run $50,000 to $100,000.

Professional Liability / Errors & Omissions. If your business gets paid for expertise—consulting, accounting, tech services—this covers mistakes, missed deadlines, and misstatements. Directors and officers coverage is a related add-on for companies with a board or investors.

Cyber and Data Breach. If you collect customer data of any kind—medical, legal, financial, or basic personal information—this coverage is surprisingly affordable relative to what a breach actually costs.

Health Plans. Offering employee health insurance can reduce taxes and help you compete for talent, but run the numbers with a sharp CPA first. The tax savings exist, though the total cost of premiums across the team is the bigger swing.

Disability Add-Ons. These are inexpensive, rarely claimed, and give you something meaningful to offer candidates during hiring. Even a $50,000 benefit sounds significant to a prospective employee.

Be Brutally Honest on Applications

Insurance companies will look back at your original application when a claim hits. If they find gaps or half-truths—even small ones—they can refund your premiums and deny the payout entirely. You are not getting ahead by shading the truth. Be brutally honest upfront so the coverage is actually there when you need it.

What Insurance Will Not Cover

Policies are built for accidents and negligence—not intentional acts or unpaid taxes. No carrier will cover an assault by your employees or bail you out of a tax obligation. Insurance protects against mistakes; it does not provide a pass for wrongdoing.

Video Transcript

The real cost of skipping business insurance

What’s the real cost of skipping business insurance? For many companies, it’s not thousands. It’s everything. One lawsuit, one breach, one misstep, and you’re paying out of pocket or worse, shutting down. Most business owners don’t realize how affordable and targeted liability coverage can be. In this video, we break down exactly which policies matter most, how to think strategically about risk, and the one mistake that could cost you your entire claim even after paying for coverage.

Let’s get into it.

Employment Practices Liability for teams over 10

One of the easiest ways to prepare for that is just Pay out a small amount each year for an Employment Practices Liability Policy (EPLI) and again, I would recommend it if you have over 10 employees.

Coverage for mistakes by industry

There are other sorts of errors that companies can make, and there are insurance policies designed for those errors.

For example, you might get an Errors and Omissions Insurance Policy or it might be called a professional liability insurance policy, or maybe directors and officers insurance policy. The whole idea here is for any sorts of errors that occur, your industry may have a policy that will cover those sorts of errors.

And so I would recommend talking with a business broker about those errors.

With a lot of these policies. It is just going to be weighing the pros and cons. For example, you might think to yourself, What are the odds that we would get sued for the type of claim or injury that is covered by this particular insurance policy? So you might say, well, maybe it is 1 in 20. Just hypothetically, picking a random number.

Alright, well, how much would it cost us then to to deal with that sort of claim? Well, let’s say it is $80,000 in legal fees. Okay, so, would we rather pay out the monthly amount or the annual amount for this insurance policy or play the odds, let’s say 1 in 20, that each year that goes by we might have to come up with $80,000. So it is just simply thinking through statistically what that looks like. That is what the insurance companies have done as well. And they have essentially spread that risk around with a little profit margin for themselves, so that you are paying in a little bit each year with the understanding that you or somebody else in your same situation, they call it risk pool, would have a payout event.

Generally speaking, you have a pretty good idea as a business owner in your company, the types of risks that you are going to run into, the types of things you might get sued for, and so it makes a lot of sense to think about those risks and identify, “Is there an insurance policy that can cover you for those risks?”

Be honest on insurance applications

By the way, this raises a really important point. Always be honest in your applications because I have seen many times where people are not quite honest in their insurance application because they want to get the best deal or they want to get coverage where they are not sure they would get coverage if they were fully honest. What you may not know is that once you have a claim, the insurance company will look back at the application you filled out to see if it was honest in every aspect. And the insurance company has the option of returning what you have paid if you have been dishonest rather than paying out on the insurance claim.

So you are not getting ahead by being dishonest in any way. Even if it is a small way in an application for insurance. Because the insurance company will take your money. You might think, “Well wait, they took my money. They accepted my application.” No. They have an opportunity up until the point of paying out on a claim to reject your application for dishonesty and just give you back all the money you have paid to date rather than paying out on that claim.

So you always want to be brutally honest on the policy application. When you apply for insurance, be brutally honest because the last thing you want is relying on a payout and then find out something was not quite right on your application and now the insurance company is using that to deny your payout.

Cyber and data breach coverage

Cybersecurity or Data Breach Insurance can be important if you are collecting a lot of medical or legal or accounting or other data about customers. If you want to have a policy in place in case you are ever hacked, you can get for fairly inexpensive that sort of policy.

Tax impact and talent

Let’s talk about employee health plans. Sometimes companies will offer an employee health plan. Many times this is done for two primary reasons. First, it can reduce how much is paid in taxes because the company is now covering significant expenses associated with employee health plans. And that includes for the business owner herself.

Second, it can help you get top talent. It can help you be competitive with all the other big corporations out there that are offering employee health plans in order to be competitive. If you are thinking about doing an an employee health plan and get providing employee health insurance to your team. I would recommend working with a CPA who is knowledgeable in this area to figure out what would the actual benefit be for you on a tax basis.

Generally speaking, there is a small tax benefit, but a substantial cost because the tax benefit you get is essentially from increasing your expenses for all of your employees.

Employee disability plans

Employee disability plans. If an employee is disabled due to something that happens on the job, they are allowed to collect workers comp. But if they are disabled for a long period of time, workers comp will eventually end, and you can get additional plans that provide coverage for disabled employees.

These are usually very inexpensive. They also are rarely utilized. In my experience, employers get these disability plans because they cost so little and it is a little thing that they can tell their prospective employees who they are trying to attract to their company in the hiring process. “Hey, we also offer a disability insurance policy of $50,000” or whatever that amount may be.

It sounds like a lot to the employees, but again, the reason they are so cheap is because employees so rarely get disabled that it is very rare for the insurance company to pay that money out to the employees.

What insurance will not cover

And then finally, there might be some risk in your company that is specific to your industry. And so the best practice is just do a little checking with either AI or Google or talk to a business insurance broker or all the above and figure out are there other risks that you are facing that you might be able to get insurance to cover.

Now there is certain sorts of activity that you will never be able to cover. For example, if you don’t pay your taxes. There is no insurance company that is going to come in and say, “Oh yeah, we’ll pay your taxes for you.” Or if you assault somebody or your employees assault somebody, in other words, they hit them, or they batter them.

It would be extremely rare for any insurance policy to cover something like that because that is an intentional act. But insurance companies will often cover negligence. So in other words, “Hey, we made a mistake.” That is the kind of thing that you can often get insurance for. And the whole idea is, “Hey, if you can pay out a little bit every month or every year so that you don’t have these big events that can just crush the company, that may be worthwhile to you.”

So to recap, there are two ways to save money on legal fees. One is doing things right in advance. And then second, even though you might do things as carefully you can, maybe you can get some insurance to mitigate those risks. So if you do have some sort of legal event, the insurance company pays it out.

About Aaron Hall and next steps

I’m Aaron Hall, an attorney for business owners and entrepreneurial companies. It As I always say, before you rely on any of this, consult with an attorney. It is my hope that you use these questions to identify topics and questions to bring up with your attorney. I hope you are doing well. Take care.