With so many liabilities, insurance providers, and policy options for small businesses to consider, purchasing proper coverage can be a time-consuming, complicated process. But with your business’ finances and reputation on the line, it couldn’t be more critical.
Every company has different needs and risks, so finding the best small business insurance for yours requires a lot of research, risk assessment, and financial calculations. But this is not the time to try and save time and money—with inadequate coverage, you may spend even more time and money in the future in the face of an unexpected event or lawsuit.
Identifying and understanding the common mistakes that small business owners make when insuring their business is the best way to prevent you from making them yourself. When purchasing an insurance policy for the first time, or renewing your current coverage, keep these mistakes in mind.
1. Assuming You Know the Law
Just because you understand the general principles of insurance law or know the regulations in one state like the back of your hand doesn’t mean you know all the business insurance requirements for your current location and business type. These laws vary from state to state, and they can apply differently to businesses of different sizes and within specific industries.
For example, the requirements for workers’ compensation insurance and commercial auto liability insurance are different in each state. In the latter case, most states require businesses to have bodily injury liability and property damage liability coverage for commercial vehicles. In other states, your business may also require medical payments coverage. Researching your state’s law can help you avoid future complications or unintentional non-compliance.
2. Not Looking at the Numbers
When shopping for insurance policies, knowledge is power. You should use data to assess the risks you face, the potential costs of those liabilities, and the average insurance costs for other businesses in your area and industry.
For example, when looking for the right workers’ compensation insurance policy, you can research the average number of annual work-related accidents and illnesses in your industry, the average associated medical costs, and your industry’s classification code modifier. When deciding on a coverage limit for property damage insurance, you can gather data on local crime rates and the frequency of natural disaster and weather-related claims from businesses in your area.
3. Skipping the Risk Assessment
Risks and liabilities are unique to each business. The only way to identify and understand your company’s unique insurance needs is to do a full risk assessment.
Until your risks are identified, you won’t be able to manage them effectively. You can hire the services of a risk engineer or a risk assessment team to identify your company’s specific liabilities and develop measures to minimize the likelihood of something going wrong or a client or customer raising a lawsuit against your company.
4. One-stop Shopping
A common mistake is to use the same insurance company for all the policies you need. It may seem convenient to work with the same people for all your insurance needs, but it’s not the best way to guarantee a fair price and quality coverage in all areas.
Be sure you shop around and request quotes from a few insurance providers for each type of policy you need. It may take some time and patience, but this research can lead you to insurance companies with better coverage for less money.
5. Overlooking Umbrella Coverage
You may end up deciding that the cost isn’t worth it, but business owners should at least consider umbrella insurance and crunch the numbers to see if it makes sense for their business.
Simply put, commercial umbrella insurance covers claims that exceed the coverage of your liability policies, such as your general liability insurance plan.
For example, if you already have general liability insurance, having umbrella coverage can help you save money if defending the business against a third-party bodily injury lawsuit costs more than your general liability policy limit. Or, if you face numerous general liability claims within the same policy period that, together, exceed your policy limit, umbrella insurance can cover the remainder.
Navigating the World of Business Insurance
Especially for new small business owners, insuring a business can be a complicated task. To ensure you make the right choices for your company and it’s unique needs and liabilities, be sure to identify potential claims through a complete risk assessment and investigate how much these claims could cost you. Then, work with knowledgeable insurance agents and comparison shop to find the best-fit policies for your business.