Avoiding the Most Common Small Business Insurance Mistakes
Small businesses are widely considered the backbone of the economy and make up nearly half of all private sector employment. At the helm of this thriving culture is the small business owner, who often wears multiple hats in their organization. While their ability to multitask is essential, they may be lacking the expertise to help avoid common small business insurance mistakes.
The pressure to succeed can be enormous for entrepreneurs who take on the challenge of being a small business owner. With long hours, late nights and financial obligations at stake, this person assumes a huge amount of responsibility. In planning for the health of their company, it is absolutely critical for small business owners to protect their big dreams and avoid costly, unexpected losses with the right insurance. Not convinced? Check out the top five most common and costly mistakes:
#1 Small Business Insurance Mistake: Being Underinsured (or Uninsured)
Look, we get it – when you are working to get your business off the ground, every dollar counts. There is no room to justify unnecessary expenses when you are trying to achieve profitability. You may be tempted to think that business insurance falls into this category, or worse yet, that “Nothing will happen to me.” But that’s not a gamble worth taking.
One insurance provider analyzed five years of data from their small business property and liability policies, to identify the average expense of the most common insurance claims. The top five were:
- Burglary & Theft (20%) $8,000
- Water and Freezing Damage (15%) $17,000
- Wind and Hail Damage (15%) $26,000
- Fire (10%) $35,000
- Customer Slip and Fall (10%) $20,000
Paying any one of these claims out of pocket could seriously hurt your profits, or worst-case scenario shutter your company’s doors. So, while you cannot control the weather, you can improve your odds against Mother Nature by purchasing Commercial Insurance for your small business.
#2 Small Business Insurance Mistake: Diluting Your Liability
Working with an insurance broker should be like working with a friend. No one wants to see you succeed more than we do. If you are buying new office space, purchasing a warehouse to store inventory or buying another company vehicle, we want to know about it. If we are insuring your business, we need to know about it.
#3 Small Business Insurance Mistake: Having the Wrong Insurance
Personal Insurance and Commercial Insurance are two separate things, and it is important to understand their differences in areas of crossover. Even though your work and personal lives may not be separate, the insurance you have in place for both definitely should be.
Try our two-question insurance quiz below to see if you can pick the right coverage for each scenario:
Q-1: Employees at your T-shirt business occasionally drop orders off with customers on their way home from work. One of your employees gets in a car accident on their way to drop off an order. This accident would be covered by:
Your employee’s personal auto insurance; or
Your commercial auto insurance
A-1: Commercial auto insurance. So, if you don’t have it, you could be liable for your employee suing you for the damages that their insurance does not cover.
Q-2: Your startup is a home-based business. You have a couple of employees who work part-time on the additional computers you purchased for your home office. While away on vacation, a burglar ransacks your home and takes a bunch of your belongings, including the computers. This accident would be covered by:
Your homeowner’s insurance; or
Your business property insurance
A-2: Your business property insurance. Unfortunately, homeowner’s insurance typically does not cover belongings that are on the premises for commercial use. Without business property insurance, you would need to replace all of the computers out of pocket.
#4 Small Business Insurance Mistake: Setting It and Forgetting It
Hopefully, you have already done the leg work to set up insurance for your small business: You met with an insurance broker, went over all the necessary paperwork, and picked out the policies you needed to protect your company. So, when the statement comes in the mail next year to renew your coverage, it may be tempting to send in the renewal payment and get back to work . . . right?
Well, not exactly. It is great that you were proactive about getting coverage in the first place. However, 75 percent of small businesses are underinsured by at least 40 percent. This is commonly the result of “setting it and forgetting it,” a common small business insurance mistake that refers to putting a policy in place and never revisiting it to make sure it continues to meet your needs.
When it comes time to renew your insurance, we suggest doing an annual review with your insurance broker to reflect on the ways your business has grown and changed – so your protection can evolve with you.
#5 Small Business Insurance Mistake: Buying Coverage Not Tailored to Your Business
You can purchase just about anything online, and that includes insurance. On the one hand, it is exciting that coverage is so accessible. On the other hand, this increases the likelihood that you are buying “one size fits all” insurance that is not tailored to the specifics of your business. For example:
SCENARIO: You purchased property and liability insurance for your photography business online. One day, a virus crashes your computer and you lose a bunch of your clients’ photos. Your claim is denied, and the insurance company says that you should have purchased cyber insurance since you were conducting business online.
The bottom line is this: If you buy coverage online for a low price, without ever discussing your business’s functions with an insurance broker, there is no way to guarantee that all of your risks are being addressed. When you are in the market for small business insurance, do not overlook the importance of a face-to-face meeting with your insurance broker.
When it comes to insurance, people generally do not take issue with the coverage they have – but rather, the coverage that they did not have when they needed it. Your small business is your livelihood. The fulfillment of a life-long dream to be your own boss. So, do not forget to protect your company with the right mix of business insurance.
DPM Insurance Group is proud to be a small business, and can provide coverage to help your small business thrive. To get a free, no-obligation quote on your small business insurance from a DPM Insurance Group broker, click here: https://dpmins.com/locations/
Contact us today to discuss the needs of your small business.
Source: Webb Insurance