The world of insurance is vast and complex — which is why many entrepreneurs and business leaders continue to make insurance-related mistakes that put their organizations at risk. If you want to protect your small business, you need to learn more about your business insurance options and avoid some of the worst insurance mistakes. Though the following mistakes are relatively common, they can devastate a business in need of insurance coverage. Thus, before you settle on an insurance policy or provider for your business, you should make certain that you are avoiding the following mistakes.
Inputting an Improper Business Description
During your business strategy planning stages, you might navigate to a small business insurance provider’s website to look for quotes on policies that would protect your business from various risks. However, the quote generators you use online are not perfect; they will provide only rough estimates based on vague categories that your business falls into.
For example, you may be opening a hotpot restaurant, where customers will have pots of simmering liquid over open flames at their tables, but the quote you receive online will likely only apply to a typical restaurant business, where customers are safely separated from the dangers of the kitchen.
You shouldn’t assume that the anonymous quote you receive online will be close to the true premium you need to pay for your business insurance policy. Instead, you should speak directly to an insurance provider and offer a more detailed description of your business before trusting in the accuracy of an insurance quote.
Indeed, the type and amount of coverage a business requires heavily relies on the nature of its operations. Misrepresenting or inaccurately describing your business can lead to inadequate coverage or denied claims. This is particularly critical for specialty fields, such as nonprofit organizations. Understanding what type of insurance does a nonprofit organization need ensures that their unique risks are effectively addressed. Providing an accurate and detailed business description is crucial to guarantee that the insurance coverage aligns with the business’s specific needs.
Underinsuring One’s Business
Another pitfall to avoid is underinsuring your business. When evaluating your insurance needs, you often overlook the full range of potential risks. It’s not uncommon to find yourself considering only the basic types of insurance, such as general liability or property insurance.
Yet many other potential risks could jeopardize your business, including professional liability, product liability, employment practices liability, and cyber liability. Each company is unique and requires a thorough risk assessment to determine appropriate coverage. Falling short on coverage can lead to devastating financial losses in the event of a claim that exceeds policy limits.
Failing to Read or Understand the Fine Print
All insurance is complicated, and commercial insurance might just be the most complicated of all. Every commercial insurance policy is unique, filled with special warranties, terms and conditions that determine the whats, hows, whens and whys of coverage. It is a mistake to assume that any element of your business insurance policy is simple or straightforward; before you accept the terms of your policy, you need to read and understand the fine print.
If you struggle to comprehend the language of insurance contracts, you might enlist the help of your business legal team in deciphering your potential insurance policies. Then, you can know for certain how much you need to budget for out-of-pocket costs and how you should respond when your organization does succumb to risks.
Not Reviewing And Updating Insurance Coverage
Another common oversight is not regularly reviewing and updating the insurance coverage. As your business evolves, so do your risks. Coverage that was adequate when your business was established may be insufficient a few years later. Your business insurance needs can change due to various factors, such as an expansion of operations, acquisition of new assets, changes in business activities, or even changes in the law. You must review your insurance policies regularly and adjust to ensure your business is adequately covered.
Prioritizing Low Premium Cost Over Value
With insurance, you are paying a relatively small amount every month to avoid a potential massive expense in the future. Still, that premium payment can seem insurmountable to some startups and small businesses, which tend to have tight budgets in their earliest years of operation. If you are extremely cost-conscious, you might make your insurance decision based on the amount of your monthly premium — but this is usually a mistake.
You need to think critically about the coverage your business needs and ensure that the policy you ultimately acquire includes these elements. Then, you can go about shopping for the lowest premium. However, if you cut your monthly premium so severely that it eliminates the coverage you need, you might as well not pay for insurance at all.
Neglecting to Vet Multiple Insurance Partners
Not all commercial insurance providers are created equal. Some insurance providers have more experience in certain fields and thus can provide more streamlined services to businesses operating in specific industries. Some insurance providers keep costs low but offer notoriously spotty coverage. Some insurance providers excel at digital marketing, but their professional services leave something to be desired.
There is an optimal insurance provider for your company, but it might not be the first insurance company you interact with. You should take time to explore your options, interacting with multiple providers to get a sense of their products, policies and procedures. You can also reach out to past or present clients of certain companies, read online reviews and perform other forms of research to vet insurance providers before they become your partners.
If you make a mistake with your commercial insurance, your business could fail. Sooner rather than later, you should work with a reputable insurance provider to keep your organization safe and functional into the future.