Common Mistakes Small Business Owners Make in Insurance and How to Overcome Them
Bashing it down, running a small business is like a complex collection of challenges popularized by financial and operational issues. With any significant feature running a business, an adequate coverage with proper insurance does not lag behind this need. However, most small business owners forget some very critical factors while purchasing insurance and, hence, end up making expensive mistakes that run the risk of jeopardizing the future of the business. This paper addresses common mistakes done by small business owners on insurance as well as practical tips that help to avoid such mistakes.
- Underinsuring the Business
Most small business owners underestimate the amount of insurance required, and they mostly end up under-insured in a really understated way. Many owners try to cut costs so as to reduce the overhead costs of running a business, or they are simply not adequately informed regarding the risks entailed by running a business. At this stage, only enough coverage should appear like a waste if such an accident or litigation occurs, or if the company experiences natural disasters because what the company pays out may still be less than the damage resulting.
Avoid It By: Find an insurance agent who understands your type of business and keep him informed on any change of coverage you may need. Periodically review the valuation of any business insurance you are running on the assets of your business, especially property, equipment, and stock for maximum coverage at all times. Update your insurance as your business grows.
- Miscellaneous Errors
Small-scale business owners seem to believe that they need general liability insurance if they operate from home or see fewer customers. General liability, however is extremely basic in covering your venture against cases of damage to property, bodily and advertising injuries. Your firm will be a victim of litigation that will suck significant amounts of money out without this type of insurance cover.
How to Avoid It
Even if your business does not operate directly with the public, accidents can still happen. Be sure to get general liability coverage for an unforeseen accident, such as a client slipping and falling on your premises or the damage that someone causes to other people’s property.
- Lack of Knowledge Regarding What’s Excluded
Most small business owners commit one of their biggest mistakes there-that is, they don’t know what their exclusions are under the policy. A policy normally provides exclusions to some other things that will not be covered under the policy. Some things cannot be covered even by insurance coverage. There are some events or conditions that are not even covered through insurance coverage. For example, business insurance policies often exclude any form of damage caused by natural calamities. Floods and earthquakes are examples of natural calamities, which happen to be some of the most common exclusion items on most insurance policies. It is actually at these exclusions that the opportunity exists to make such potential out-of-pocket disaster expenses if one doesn’t understand the nature of what these exclusions are.
Avoid It: Read the whole policy and ask your agent to explain all the exclusions. If you need it, buy additional coverage for specific risk, like flood insurance or business interruption insurance. Literally, unawareness of what’s covered and what’s not is what makes you better prepared against possible risks.
- Lack of Workmen Compensation Insurance
Workers’ compensation insurance is legislatively mandated in most states and countries of all businesses having employees. Sad to say, some business owners think themselves exempt or they only have a few employees and therefore do not carry this important coverage. Such a mistake would attract heavy fines, lawsuits, and very possible closure of their business in the event of an employee’s injury at work without adequate insurance.
How to Avoid It:
Know the laws of the states or jurisdictions that oblige you to have workers’ compensation. Even your company has just a handful of employees, such businesses have to make sure that there is workers’ compensation insurance because such preventive measures not only shield your business but also your employees from something worse happening, and then an injury or illness occurs.
- Failure to Provide Business Interruption Insurance
Probably at the top of the list of all the types of insurance that small businesses often forget or overlook is business interruption. Business interruption coverage helps businesses from lost income, usually due to temporarily closing down operations owing to damage from a covered event. Without that, you would not be able to pay your rent, payroll, and utilities, which seem to keep going on their own.
Prevention
Ensure that you cover business interruption insurance. This will mean that your business would be in a position to pay off its debts and other monetary responsibilities as temporarily closed. You are supposed to carry out policy limit analyses taking into consideration the firm’s operating cost for the period of interruption.
- Dependence on Personal Insurance
Most of the small business owners, in particular, single proprietors trap themselves by using personal policies for all the business risks. For example, they feel that car accidents that may happen while on business will be covered under personal auto insurance. In most cases, this is not so, and personal policies offer little protection to business activities.
How to Avoid:
Then make sure that you also have many business insurance covers for your business. For example, if you go to work and you own a car, which takes you to work, then you should have commercial auto insurance. If you work from home, then you will need business property insurance so that you may cover business assets and liabilities that your homeowner’s insurance does not cover.
- Rarely Review Policies
The world is dynamic, as are businesses. So should your insurance cover be approached on a dynamic basis. Of course, the small business rarely revises its policy, which creates a gap in the coverage or sometimes outdated limits no longer reflecting the value of your assets. The issue can become pretty challenging when expanding your business, especially when acquiring new equipment or hiring more staff.
Avoidance
Review your policies from time to time or at each major shift in the business. You would then be sure that the coverage still relates to what your business does today. Let also your company know of any major shift in what you are doing because they should update your coverage.
- The Cheapest Policy
They select the lowest priced insurance policy with a fear of having the cheapest premium. The cost of expense could be very practically managed, yet at the same time, the lowest price-based policy can have to become inadequate protection and more of coverage, too. So, that’s because some of the least expensive policies have higher deductibles or fewer coverage areas or exclusionary protections so that whether you will save the business or not will depend upon luck.
As much as you would want to save a few pennies, forget this for a policy that pays most of their hearts with the right cost coverage balance. Compare several insurance providers, what value is placed on policy coverage limits and exclusion, as well as what reputation an insurer has. A lot more can be gained in a costlier policy as it covers your business comprehensively, rather than saving a few dollars upfront at the loss of much more later.
Conclusion
In fact, one of the most agonizing features of any business venture can go seriously wrong with coverage complexity. The mistakes that are commonly included underinsurance, lack of attention given to exclusions, and reliance on personal policies – all these common pitfalls are made in practice and unveil an inadequately covered business venture, vulnerable to unforeseen risks. That is, reviewing and renewing the policies of your insurances periodically, acquiring services of an experienced insurance agent, and ensuring you have all the proper coverage will afford good protection to your business in the long run. However, by learning from such common insurance mistakes, you can keep growing your business with confidence, knowing that everything-liquids, people, and dreams-is protected.
