Did you encounter unexpected risks while running your business?
For many companies, one of the most significant challenges is not just daily operations but also securing the right insurance coverage. The right policy can make the difference between celebrating a successful year and struggling to recover from unexpected losses.
So, let's go through this guide to explore the top business insurance mistakes you may encounter and how to avoid them to keep your business secure.
List of Top 8 Business Insurance Mistakes to Avoid
Here are the 8 common business insurance mistakes you may encounter and tips on how to avoid them:
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Underestimating Your Coverage Needs
Some business owners choose minimal insurance coverage to save costs, but this can backfire when unexpected events like property damage, theft, or equipment failure occur. Getting insured is not just about having any policy—it is about having the right one. Skipping this step can expose you when you need to make a claim, but discover your coverage falls short.
For instance, a restaurant owner buys general liability insurance but skips adding liquor liability, leaving them vulnerable to claims related to alcohol-related incidents.
How to Avoid It: Regularly review your policy to ensure it accurately reflects the value of your property, equipment, and inventory. Update your coverage as needed to match your current needs, and consider adding business interruption insurance to protect against income losses during downtimes.
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Prioritising Price Over Coverage
If you focus only on finding the cheapest policy, you might need to be more insured. Low premiums often come with high deductibles and limited coverage, which can cost you more if you need to file a claim.
Suppose a retailer opts for a low-cost insurance policy with minimal coverage and a high deductible. Unfortunately, a fire later damages their property and inventory. Due to the limited coverage, the insurance falls short, leaving the retailer unable to cover the deductible and repair costs fully. This financial strain makes recovery difficult.
How to Avoid It: Work with a knowledgeable insurance broker who can evaluate your business risks and structure coverage that balances cost with adequate protection. A trusted broker will also provide ongoing support and assist with claims if needed.
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Neglecting Industry-Specific Risks
Many business owners assume a standard insurance policy will fully cover them, but this can overlook risks unique to their industry. For example, a commercial vehicle business owner might mistakenly believe their auto insurance covers commercial use. This misunderstanding can lead to denied claims and unexpected costs.
How to Avoid It: Every industry has unique risks. If your business depends on vehicles, commercial vehicle insurance is essential to cover accidents, damages, and liabilities that personal policies typically do not include. You must work with an insurance broker who understands your industry to create a policy addressing your risks.
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Skipping Cyber Liability Insurance
Many small businesses assume cyberattacks are only a concern for large corporations, but small companies are often at greater risk due to weaker cybersecurity. Therefore, cyber liability insurance is essential. It helps cover costs associated with increasingly common cyberattacks or data breaches.
For example, an online retailer does not invest in cyber insurance. When hackers access customer payment information, the business faces lawsuits and fines that could have been covered by insurance.
How to Avoid It: Cyber insurance covers data breaches, ransomware attacks, and data restoration costs. It can also help with legal fees and fines. Cyber coverage is essential when handling customer data or conducting online transactions.
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Overlooking Protection for Potential Income Losses
Many business owners assume property insurance is enough. Still, it will not cover lost income if your business temporarily closes due to a covered event, like a fire or natural disaster.
Suppose a manufacturing company does not buy business interruption insurance. After a fire halts operations, they face weeks of lost revenue while waiting for repairs.
How to Avoid It: Business interruption insurance can cover lost income and help with ongoing costs, like rent and payroll, while you recover from an incident. This keeps your business afloat financially during downtime.
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Neglecting Industry-Specific Risks
Many business owners assume a standard insurance policy will fully cover them, but this can overlook risks unique to their industry.
For example, a construction company or manufacturing unit might underestimate the need for workmen compensation insurance. If an employee gets injured on the job without coverage, the business may face significant legal and medical expenses.
How to Avoid It: Evaluate the specific risks associated with your industry and invest in relevant coverage, like workmen compensation insurance for employee injuries or product liability insurance for manufacturers. A knowledgeable insurance broker can guide you to the right policies tailored to your operations.
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Failing to Update Coverage Regularly
A common oversight is setting up an insurance policy when you start your business and failing to adjust it as you grow. Hiring new employees, expanding services, or adding assets can impact your insurance needs. Updating your policy ensures you stay adequately covered.
For example, you may buy new inventory for your business but forget to update your business insurance policy. The additional stock may not be insured if a sudden incident occurs in your business.
How to Avoid It: Review your policy with your insurer each year to keep your coverage up to date with any changes in your business operations. This can help prevent coverage gaps and better protect you against evolving risks.
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Skipping Professional Liability Insurance
Some small business owners skip liability insurance, assuming their risk is low, mainly if they operate from home. Professional liability insurance, or errors and omissions (E&O) insurance, is necessary for businesses that offer advice or services. It covers claims of negligence or mistakes that could harm a customer financially or damage their reputation.
For example, an accountant’s financial analysis for a business sale includes errors. After discovering the inaccuracies, the new owner sues the accountant for compensation, which would have been covered by E&O insurance.
How to Avoid It: Get general liability insurance to cover legal defence and settlements if you face a lawsuit. If you offer professional services, invest in professional liability (or errors and omissions) insurance to protect yourself from negligence or poor service claims.
Avoiding common business insurance mistakes gives your business the safety net it needs. Regularly reviewing your policy and addressing potential coverage gaps helps establish a foundation for long-term stability and success.
You must contact an experienced business insurance advisor today to review your policy and ensure you are fully protected.