April 12, 2018

25 Small Business Insurance Mistakes That Cost You Money (Fit Small Business) »

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Running your own business increases your liability. For this reason, it’s important to protect your business by insuring both your company and your employees. However, some small business owners commit mistakes when taking out an insurance policy, costing them money. We’ve talked to the experts and found the most common small business insurance mistakes that can increase your business expenses.

Here are the top 25 small business insurance mistakes you should avoid:


1. Managing Accounting Tasks Manually

Andy Wood, Executive Vice President – Retail Operations, Insureon

Managing accounting tasks by hand is not only tedious, it’s also an easy way to make mistakes. To avoid this, it’s highly recommended to use a cloud-based accounting solution or another automated resource that pulls directly from your bank activity to help manage your finances. Also, consider using apps that help record your business expenses such as travel, entertainment, and mileage.


2. Not Checking Your Business Credit Before Getting a Policy

Gerri Detweiler, Education Director, NAV

Small business owners often don’t realize that the insurer may check their business credit profile as part of the underwriting process. A poor business credit history may make it difficult or more expensive to get the insurance they need. Before you apply for any kind of business insurance, consider checking your business credit profile to see where you stand.

For more information, read our guide on how to check and decipher your business credit score.


3. Not Getting Liability Insurance

Michael Dinich, Retirement & Estate Planner, Michaeldinich.com

Many small business owners assume an LLC or Corp will protect them from lawsuits. However, unexpected events can happen that may lead to a lawsuit – and a lawsuit can be costly and can shut down a small business. It’s important for every small business to have appropriate liability insurance for their industry/trade. You can get discounted insurance by joining industry organizations.


4. Not Buying an Errors & Omissions Policy

Mike Payne, Commercial Property & Casualty Insurance Agent, My Knowledge Broker

If you are a manufacturer, you should consider buying an E&O (errors and omissions) policy. E&O covers claims made by clients for inadequate work or negligent actions from products made by your company. The legal costs associated with a major lawsuit could put a small and growing business under great distress.

To learn more, check out our article on errors and omissions (E&O) insurance.


5. Not Having a Cyber Insurance Policy

Dan Burke, Vice President and Cyber Product Head, Hiscox

Cyber insurance protects businesses and individual users from internet-based risks. It is designed to help an organization mitigate risk exposure by offsetting costs involved with recovery after a cyber-related security breach. Unfortunately, only around 58% of small businesses have cyber insurance. There are businesses who incur losses due to cyber-security risks, and having a cyber insurance can help you prevent such risks and losses.


6. Not Taking Advantage of IRS Code Section 162

Chris Abrams, Founder, Abrams Insurance Solutions

Section 162 allows for an Executive Bonus plan. An executive bonus plan is a fringe benefit, funded with life insurance, given to a select group of key employees and/or business owners. It provides protection to the executive’s family during their working years, and when it’s funded with permanent life insurance, it can also provide tax-advantaged supplemental retirement income.


7. Not Understanding the Limits & Terms of the Insurance Policies

Joseph Deutsch, Owner, The Fidella Agency

One common mistake in purchasing an insurance is not understanding the true ramifications of all the limits and terms of the policies. Insurance policies can be tricky with many industry-specific terms that need to be understood. It is crucial to read every single exclusion and endorsement in the insurance policy and make sure you understand all details before you agree with the terms.


8. Buying a Cheap Insurance Policy Online

Ben Taylor, Founder, Home Working Club

It’s easy to perform a Google search and buy a cheap insurance policy online. However, getting such a policy to pay out on a claim may well be far more difficult. Often, there will be terms and conditions hidden in the small print, such as not being covered for work done for clients in other countries. It’s important to really understand the policy you’re buying and discuss this with an insurance advisor.


9. Not Having Keyman Life Insurance on Partners or Key Employees

Lingke Wang, Co-Founder, Ethos Life Insurance

One common insurance mistake is not having keyman life insurance on partners or key employees. This is a life insurance policy on the keyman’s life with the business as beneficiary. It can save a small business if that person dies or becomes disabled and can no longer work. The benefit amount helps offset what it would cost to find and replace the key employee.

Interested in learning more? Read our complete guide to key man life insurance.


10. Buying a Policy Based on Price Rather than Value

Michael J. Perry, Vice President of Property & Casualty, CBIZ Insurance Services, Inc

Most small business owners treat insurance as a commodity and as a result, are buying based on price rather than value. When it comes to buying business insurance, one size does not fit all. It is critical that the insurance carriers understand your business and craft the coverage to meet your needs. Cheap policies are not always the best policies for your business.


11. Not Providing Enough Essential Information

Graham Mills, Partner & Insurance Law Attorney, Newmeyer & Dillion LLP

It is crucial for the business owner to provide all the necessary information so that the insurance company will have an understanding of what the business does to identify the desired and needed coverage. Every business is different and so the risks associated with each business are not identical. Being able to buy the right insurance will depend on the accuracy of the information you share to your broker.


12. Not Getting an Umbrella Policy

Jeff Witt, AVP Commercial Lines Research and Development, Arbella Insurance

One common insurance mistake is not getting an umbrella insurance policy. Umbrella insurance is an extra liability insurance designed to help protect you from major claims and lawsuits. It does not only provide additional limits but also provides additional coverage not available in the underlying coverage. It also provides coverage for claims that may be excluded by other liability policies like false arrest, libel, and slander.


13. Not Having Your Property & Equipment Insured

Jay Labelle, Owner, The Cover Guy

Although liability insurance is probably the most important insurance for every small business, it is equally important to insure your business assets such as your business property and equipment. Business equipment insurance provides cover for loss or damage to property or equipment that you use for your business. If your business couldn’t function without expensive equipment, it’s essential to have sufficient business equipment insurance cover in place.


14. Not Purchasing Business Interruption Insurance

Bret Bonnet, Co-Founder & President, Quality Logo Products

If you’re starting your own small business, it’s very important to purchase business interruption insurance. Business interruption insurance covers the loss of income that a business suffers after a disaster. This income loss may be due to the closing of the business facility or due to the rebuilding process after a disaster.


15. Inaccurately Forecasting Business Activity When Pricing Insurance Policies

Mike Fusco, Co-founder & President, Fusco & Orsini

If you don’t project proper levels of business activity, it could cause an inaccurate pricing your insurance policies. If you forecast gross sales and payrolls incorrectly, your insurance premiums will also be priced incorrectly. This gives you a false cost for budgeting and may also lead to unexpected audit bills.


16. Not Having Sufficient Disaster Insurance

Brad Plothow, VP of Marketing & Communications, Womply

Most small business owners are not insuring themselves sufficiently against the threats they consider most damaging. Many small business owners with less than a month of reserves consider floods, fires, and other nature-related disasters as extremely damaging. However, only a few have disaster insurance, because some of them think that such disasters are very rare and that these disasters might not happen to them.

Read the rest of the article on Fit Small Business’s website

 

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