As Gene Fairbrother, a Dallas, Tex.-based consultant for the National Association for the Self-Employed (NASE), told Fiducial.com that insurance "is one of those expenses that's put on the back burner unless you have experienced a situation before of needing it and not having it."

Businesses acknowledge the need for having insurance but they don't realize in the scheme of things how inexpensive coverage can be.

"Worker's compensation and errors and omissions insurance traditionally is going to have higher premium costs for most businesses, but you can get general liability coverage of a couple million dollars for less then $1,000 a year," said Fairbrother.

Experts assert that owners don't take the time to educate themselves on insurance. They also make bad decisions insurance-wise or choose to ignore it, which can haunt them for years to come.

Entrepreneurs who want to protect their assets are advised to contact their local chamber of commerce for insurance agents they recommend to seek quotes on insuring their business. Owners often fail to get business continuation insurance, also known as business interruption insurance, in case their operation suffers a blow and is out of commission for several months.

"This insurance provides that you'll still be able to open your doors," Fairbrother said.

Preventing interruptions

Loretta Waters, vice president of the New York City-based Insurance Information Institute (III), which represents the property and casualty insurance industry, cited a 2003 study that found that 55 percent of small businesses had no business interruption insurance.

"If you're a small business that relies on key people -- like a Bill Gates-type who's been behind the whole business -- then you need business interruption insurance," said Waters. "If the owner dies while working on an important project it could really result in the company having some hardships. Part of the coverage of business interruption insurance would provide for hiring temporary personnel and taking on responsibilities of those projects."

Waters pointed to the aftermath of World Trade Center terrorist attack of Sept. 11, 2001, when a number of businesses went under because they had no business interruption insurance.

"An important facet of business property coverage is it covers the loss of income resulting from a catastrophe," she said.

The basic premise of insurance is to hedge against risk. NASE's Fairbrother said there's nothing wrong with taking a risk, but when going without insurance you've got to know at what expense you're taking that risk and what risk you're taking.

"Even if you are 100 percent right, we are in a very litigious society," he said. "Who is going to pick up the bill to represent you even if you get wrongly sued? If you don't have insurance it would cost tens of thousands of dollars. But if you have insurance you're buying more than just protecting yourself and your business. You buy that legal representation."

Not buying insurance is also a typical human way of perceiving that something bad is never going to happen to them.

"A lot of small businesses would rather put the money back into the business through supply or inventory because they're running on a thin market," she said.

Waters estimated that only 30 percent of the businesses damaged by last fall's hurricanes in the Gulf Coast region had any business interruption insurance.

"One in four businesses that suffers a disaster isn't able to rebuild," she said.

Providing continuity

Having key man insurance or a buy-sell agreement in place can make all the difference, according to James Haas, operations-compliance supervisor on the financial services side for Fiducial.

Key man insurance ensures that a company is covered and able to continue if the owner dies. The buy-sell agreement also provides for the continuation of the company.

Haas provided an example of a two-man partnership where each man owns half the company. If one of them dies his interest in the company goes to his estate, then to his heirs.

"Do his heirs know how to run a company?" he asked. "The other partner is still alive. Upon his partner's death he got a lot of money so be can buy out the other half of the business. This falls under business continuity -- will the business continue if key personnel die?"

The caveat here, Haas said, is that the business has to be valued by a business expert so there's no debate about what it's worth to all parties.

Thinking beyond four walls

Wendy Rose, media relations manager for the Institute for Business and Home Safety (IBHS), a national nonprofit disaster safety organization in Tampa, Fla., said many small business owners don't have the resources to put a business continuity plan in place.

"That's why we work with the chamber of commerce or industry groups or individuals to put information in their hands," said Rose. "Our goal is to keep businesses up and running. No matter what the disaster is a community can't lose a large number of businesses."

Rose stressed that business owners need to think beyond their own four walls and look at the big picture. They should not just consider their surroundings but the role they play in the community such as preserving a revenue stream.

"If we lost a lot of them the community wouldn't have the resources to thrive the way it does now," she said.

According to the IBHS, every business should have a disaster recovery plan. As part of that plan, owners need to revisit current insurance policies with their agent on a regular basis.

Updating your coverage

"You have to have a good agent," said Gene Polley, a senior business advisor in Fiducial's San Diego, Calif., office. "You need to find somebody who's competent and diligent that's interested in the business. Referrals are the best way to find them."

Not only does the business owner need sound insurance advice, but they also need to have their policies reviewed periodically. One of the things Polley does during his mid-year review with clients is ask them when they last had an insurance update.

Polley noted that owners of home-based businesses do not realize that if they use their equipment such as printers and copiers for the business it is not covered by homeowner's insurance.

"You have to get separate coverage," he said. "The average business owner, unless they have a review with me, they don't realize it."

There's also repeated incidences where businesses are universally underinsured, like those destroyed by a huge fire in San Diego about two and a half years ago. Construction costs had gone up in the area and business owners went to the insurance companies' and were told how much coverage they needed. But the problem was the owners did not update their coverage.

"That was a huge shock for people when they discovered they were underinsured," he said. "They had to take out bigger mortgages to replace what they had lost."

Having an umbrella policy

Polley revealed that most people don't think about their net worth and what kind of insurance coverage they need to protect it. Consequently, they should have an umbrella policy if their net worth has grown. Due to some of the enormous awards that have been made during liability cases in recent years, he said owners need greater coverage than the average policy provides.

"The umbrella policy gives you extra liability coverage above the normal limits on a policy such that somebody with a large net worth doesn't find there's a judgment against them that exceeds their policy value," he said.

Disasters can take many forms, such as the instance where the owner of the real estate brokerage died and left the business to his wife. Unfortunately, the wife had no idea how the business was run.

"There wasn't any life insurance or any business continuity insurance," he said. "There was nothing. What she was left with was a small insurance policy and a landlord who was looking for his rent payment."

The wife had no ability to run the business and didn't have a real estate broker's license. Worse yet, her late husband had not incorporated the company, which had been suggested by Polley and could have given her some options.

"Now she's stuck with a building she has to lease," he said.

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STEPHEN PAREZO is the Media Manager for Fiducial.