There are some common mistakes that most small business owners are making with their business insurance—and have no idea. These mistakes are costing you money. What are they? How do you fix them? We cover 9 common mistakes many businesses make—and what to do about it.
#1 Choosing the Cheapest Insurance Policies
As a small business owner, you strive to save money. It’s a given that to make a profit, your revenue must exceed your expenses. So many business owners try to save a buck by choosing the cheapest business insurance coverage possible. But doing so can mean you’re under-covered. If you’re hit with a claim that exceeds the limits of your cheap insurance policy, you’re left holding the bag.
#2 Not Updating Your Insurance Company on Business Changes
As your business grows, it is possible to outgrow the original coverage you put into place. For example, are your general liability insurance limits keeping place with your growth in revenue and business assets? How about your property limits? You need to update your insurance if your business makes any of the following changes:
- Your business moves to a new location
- You hire (or fire) employees
- If you purchase new equipment
- If your business offers new services
- If you’ve experienced revenue growth
You need to make sure your business is covered properly and not underinsured.
#3 Not Getting Enough Insurance Coverage
Speaking of being underinsured, you need to make sure you get enough insurance coverage. Small business owners do not always understand the cost differential between the lower limit and higher limit policies. Sometimes doubling your coverage can only cost 10% more. Be sure to speak with a knowledgeable insurance agent—that knows your industry—to help you determine proper coverage amounts.
#4 Paying for Insurance You Don’t Need
On the flip-side, you don’t want to overpay for insurance coverage that you don’t need. You don’t need to insure your property for $2 million when it would cost $500,000 to completely rebuild your property. This is where an insurance agent that you can trust comes in handy. They can help you choose policy types, coverage limits, and deductibles that fit your business. They can also point out where you’re double-covered and can cut costs.
#5 Not Investing in Workers’ Compensation Insurance
Not investing in workers’ compensation can cost a business thousands of dollars. If one of your employees is injured on the job and you don’t have this coverage, you can be left footing their medical bills—and costly legal settlements. Workers’ comp is expensive, but paying for an injury out of pocket is far worse.
If you have workers’ compensation insurance, make sure your employees are classified correctly. What you pay per employee is based on each employee’s classification code. A classification code is assigned to different job descriptions based on their level of risk. Those who are in higher-risk professions can pay higher costs for workers' compensation rates. So coverage for a construction worker will cost more than coverage for a receptionist.
So if the insurance agents you've worked with classify any of your employees incorrectly—or all classified the same—it could be costing you money. You also want to make sure that you aren't accidentally classifying any contractor that works for you as an employee.
#6 Not Knowing the Details Of Your Business Insurance Policy
Although insurance policies are usually long and detailed, they are contracts and you must read the insurance policy before you sign it. If you don’t read it, get your attorney to do it for you. If important coverages are missing from your policy it can leave you in a lurch. You also need to know if your insurance company will provide you legal representation and cover settlement costs if you’re sued. The devil is in the details—and you need to know your insurance inside and out.
#7 Staying with Insurance Companies for Too Long
It's important to find insurance companies and policies which will suit your needs cannot be stressed enough. Given that an uncovered lawsuit could mean the end of your business, you must find just the right company. You can’t be afraid to shop around if your insurance premiums are climbing too high. You can work with an independent insurance agent to help you get the best policy with an insurance company that fits your needs.
#8 Not Investing in a Business Owners Policy
Did you know many insurance carriers offer small business owners something called a business owners' policy (BOP)? A BOP usually includes general liability insurance, commercial property insurance, and business interruption insurance. Most businesses need general liability to protect them from claims of third-party bodily injury, third-party property damage, and advertising injury.
Property insurance protects your building—similar to homeowners insurance—and includes all of your inventory, business equipment, computers, furniture, and more. This policy will cover a covered loss up to your policy limits. Even if your office space is in your home, you may not have enough protection from your home insurance.
You want to make sure that business interruption insurance is a part of your risk management strategy. If your business is destroyed in a storm and you have to rebuild, it could be months before you’re operating at full capacity. Business interruption can cover employee payroll, lost income, operating expenses, taxes, and can sometimes cover the costs of a temporary location.
#9 Not Implementing Risk Management Strategies
Did you know that risk-management strategies can lower your premium costs with some types of insurance? Here are some ideas:
- Install security systems/cameras in your store
- Use contracts with your clients to prevent lawsuits
- Implement training programs with employees to avoid injury
- Train your drivers on safe driving strategies
Speak with your insurer to find out if your business qualifies for any price savings by implementing these strategies.
Get Insurance for Your Small Business
Small business insurance can be confusing and complicated. But it's your responsibility to protect your business. It's hard to know if you're making these common insurance mistakes. Know what your business needs can be a challenge, which is where we come in. If you need help navigating the world of insurance, let us help you! You can complete the form at the top of the page or call us at 877-907-5267 for a free quote.