In the wake of the 9 magnitude earthquake and tsunami in Japan, small businesses may be thinking about what would happen if a disaster strikes closer to home.

Not every small business needs to worry about earthquakes and tsunamis. But there are hurricanes, tornadoes, floods—and plenty of man-made disasters—that could strike at any time.

What would happen to your small business in the midst of a disaster? Would you lose everything? How would you replace it? Insurance is the typical answer.

According to a new survey from specialist insurer Hiscox, 72 percent of small businesses agree that insurance is a must-have. The question mark comes with the amount of insurance that’s appropriate.

"As a small business's revenue increases, so does the level of complexity and confusion about the proper amount of insurance coverage needed to cover against risks,” says Kevin Kerridge, small business insurance expert from Hiscox USA. “A lawsuit against a small business could be crippling, not only to the business itself, but to the owner's other assets, including their house.”

The Hiscox survey found that the bigger a business grows, the more its owners wish they knew about how much insurance they need. Established small businesses were twice as likely to cite "not understanding how much to insure their business for" as the number one mistake small business owners make when purchasing insurance versus micro small businesses.

What’s more, the smaller the size of a business, the more likely they are to use their personal network for insurance advice. Micro small businesses are twice as likely to purchase insurance through referrals from friends or colleagues, compared to established small businesses. Finally, established small businesses are much more likely to purchase insurance through brokers compared to micro small businesses.

But small businesses should be cautious about whom they take advice from. Here are a few tips to get you started, but be sure to consult with an insurance professional:

  • What are the legal minimums in your state?

  • How much protection does your legal business structure offer against lawsuits?

  • What is the value of your property?

  • What are the alternatives to high insurance rates and what risk do they bring?

You can also check out this video on how business insurance works: