| John Bosman | 390 words
77% of small businesses are already underinsured, according to the 2025 Hiscox Underinsurance in Small Business Report — and that’s before a recession adds pressure to cut costs somewhere. When budgets tighten, insurance is often one of the first line items businesses look at trimming, but the coverage most likely to get cut — business interruption limits, EPLI, cyber — is often the coverage that matters most during a downturn, not less. This page walks through the insurance decisions that actually matter when preparing a small business for a recession, not just general financial advice.
Short answer
Preparing a small business for a recession isn’t just a cash-flow exercise — it’s also the moment to check whether business interruption limits still reflect current revenue (not last year’s), whether EPLI coverage is in place before layoff-related claims become more likely, and whether cyber coverage got cut when budgets tightened even though cyber risk doesn’t go down with revenue. Cutting the wrong coverage to save money during a downturn can cost far more than the premium it saved.
Reader checkpoint
- Do your business interruption/business income limits reflect your current revenue, or were they set based on an earlier, lower baseline?
- If layoffs become part of your recession plan, do you have EPLI coverage in place for wrongful termination or discrimination claims?
- If you’re reviewing your policy to cut costs, do you know which coverages are essential versus which ones are safe to adjust?
Quick answer
Recession-proofing a small business is as much about which insurance decisions to avoid as which financial moves to make. 77% of small businesses are already underinsured even in a growing economy, and the coverages most often cut under budget pressure — business interruption limits, EPLI, cyber — tend to be the ones whose absence is most costly during and after a downturn.
At a glance
| Main Issue | Recession budget pressure often leads businesses to cut the insurance coverage that matters most during a downturn, rather than reviewing it first. |
|---|---|
| Common Blind Spot | Assuming insurance is a safe place to cut costs, when 77% of small businesses are already underinsured even before a recession adds pressure. |
| Useful Document | Current business interruption/business income coverage limits, EPLI policy status, cyber coverage status, and current revenue figures to compare against existing limits. |
| Best Next Step | Review business interruption limits against current (not prior-year) revenue, and confirm EPLI and cyber coverage are in place before making any cost-cutting decisions on insurance. |
Defined Q&A
How Small Businesses Can Prepare for a Recession: common questions
Do my business interruption limits reflect my current revenue, or an outdated baseline?
Business interruption limits are often set at renewal and not revisited until the next one. If your revenue has grown since the limit was set, or if you’ve never confirmed the limit against current figures, it’s worth checking before a recession adds pressure to the decision.
If layoffs are part of my recession plan, do I have EPLI coverage in place?
EPLI covers wrongful termination, discrimination, and harassment claims — claims that become more likely when layoffs happen. Standard general liability policies exclude these claims, so without EPLI, legal costs come out of pocket.
Am I about to cut coverage that actually matters more during a downturn, not less?
Business interruption, EPLI, and cyber are the three coverages most commonly cut under budget pressure — and also the three whose absence tends to be most costly during a recession. A targeted review before cutting anything is worth the time.
If one part of this topic felt familiar, start there. Pull your business interruption, EPLI, and cyber coverage details and compare them against your current revenue and staffing plans, not last year’s. One coverage gap caught before a recession is worth more than a premium saved by cutting the wrong policy.
The coverage most likely to get cut — and why that’s risky
When budgets tighten, insurance is an easy target: it’s a recurring cost with no visible return until there’s a claim. But the 2025 Hiscox Underinsurance in Small Business Report found 77% of small businesses are already underinsured — up from 75% in 2023 — even with 62% reporting revenue growth. Cutting coverage during a recession compounds a gap that already exists for most businesses before the downturn even starts.
Business interruption limits set for last year’s revenue
Business interruption (or business income) coverage replaces lost income if a covered event forces operations to stop. The limit is often set based on prior-year revenue and rarely gets revisited — which means a business that grew since its last renewal may be significantly underinsured for its current income, and a business bracing for a recession may not realize its limits were already too low before the downturn started. Confirming the limit reflects current revenue, not the number from the last renewal, is worth doing before assuming the coverage is adequate.
EPLI gets cut right when the risk goes up
Employment Practices Liability Insurance (EPLI) covers claims like wrongful termination, discrimination, and harassment — the kinds of claims that become more likely when a business conducts layoffs. Standard general liability policies specifically exclude employment-related claims, so without EPLI, legal fees and settlements come out of pocket. EPLI is also one of the more commonly cut coverages when businesses are looking to reduce costs — which means it’s often missing at exactly the moment a recession-driven layoff makes a claim more likely.
Cyber coverage doesn’t get safer when revenue drops
Cyber risk doesn’t decrease during a recession — if anything, businesses cutting security spending or reducing headcount can become more exposed, not less. Cyber coverage is frequently one of the first policies dropped under budget pressure, alongside business interruption and EPLI, even though the risk it covers has no relationship to the business’s revenue or budget.
What to actually review before cutting anything
Rather than cutting coverage across the board, the more useful move during a recession is a targeted review: confirm business interruption limits match current revenue, confirm EPLI is in place if layoffs are possible, and confirm cyber coverage wasn’t already dropped in an earlier round of cost-cutting. A focused review before renewal is a better use of time than an across-the-board cut that saves a small amount on premium and creates a much larger gap.
Should I cut insurance coverage to save money during a recession? Not without reviewing what each coverage actually protects first. The coverages most commonly cut under budget pressure — business interruption, EPLI, cyber — are often the ones whose absence costs the most if a claim happens during or after a downturn.
Why does EPLI matter more during a recession? Because layoffs increase the likelihood of wrongful termination, discrimination, or harassment claims — exactly the claims EPLI covers and standard general liability policies exclude.
How do I know if my business interruption coverage is enough? Check whether the limit reflects your current revenue or an earlier, lower baseline from a past renewal. Limits that haven’t been updated since a period of growth are a common source of underinsurance.
What to do next
Use the related tool or ask for a review before you make coverage changes.
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