Tap to Read ➤

Top 7 Mistakes New Entrepreneurs Make When Buying Business Insurance

Richard Clayton Dec 13, 2019
New entrepreneurs need to take several steps when starting their own businesses, including developing a business plan, obtaining financing, and buying insurance.
While many of them are experts in their industry, some have very little knowledge about business insurance. They make a lot of mistakes when looking for insurance coverage for their businesses. Here are 7 mistakes new entrepreneurs make when buying business insurance.

Failure to Read Policies

Some business owners make the mistake of not reading the insurance policy before deciding to buy. Be sure to read policies so you can understand what they are covering and what they aren’t. Remember, you can’t buy coverage for a loss not included in your policy once it has happened.
For instance, don’t assume that because you’ve taken insurance for your building, that you’re already covered against earthquakes, flooding, or any other type of calamity. In most cases, you’ll need to obtain insurance coverage against natural disasters separately.

Selecting a Low Deductible

Deductibles refer to the amount a business owner pays when they file a claim for a covered loss. Your insurance company will then pay the remaining amount up to the policy limit.
When buying auto damage or property insurance, don’t make the mistake of automatically selecting a low deductible. While you may end up purchasing more coverage than you need, considering the amount of premiums you’ll save by increasing the deductible from, say from $150 to $300, or $300 to $600, it is worth it.
We’d suggest choosing the largest deductible amount your company can pay comfortably.

Buying the Cheapest Premiums

Premiums can widely vary from one insurance company to another, so you should shop around before purchasing an insurance cover. But, most business owners make the mistake of buying the cheapest policy. Before deciding to buy an insurance policy, you should understand what it covers and what it doesn’t.
When buying insurance for your business, be sure to obtain quotes from multiple insurance companies. Luckily, you can get general liability insurance quotes online. Once you have the quotes, be sure to review them in detail.
Be sure to look at the types and amounts of coverage each insurer has included in their quote. Then choose an insurer that offers the required coverage at a reasonable cost.

Failure to Consider Business Changes in the Coverage

Businesses are prone to change over time. Small enterprises grow, acquire new properties, and hire more workers. Some move to new locations and others expand their product offerings.
As your business changes, your insurance coverage needs to change as well. Therefore, as a business owner, be sure to keep your insurance agents up-to-date about the changes happening in your company. Some business owners, however, fail to do this, and thus end up buying inadequate insurance cover.
You should re-evaluate your insurance requirements long before renewing your policy. Meet with your insurance broker and explain to them all the changes that have taken place in your company. After reviewing all of these changes, they will be able to determine whether any changes are necessary for your coverage.

Failure to Insure Potential Income Losses

Many business owners are quick to insure their company’s assets against damage or losses but fail to insure potential income losses.
For instance, if your business premises burn down, you might be forced to shut down your premises until all repairs are done.  Your business might not generate any income during this time. One of the ways to ensure that your business survives is by having business income coverage.
Business income coverage repays you for the income you would have earned if the damage didn’t happen. It also helps cover necessary expenses such as rent, water, and electricity.

Purchasing Inadequate Property Insurance

The mistake that many small business owners make when insuring their property is buying inadequate limits. Some of them think that if they have replacement cost coverage, it will automatically cover the cost of repairing or replacing damaged property. But the policy will not pay any amount exceeding your cover.
If the cost of repairing or replacing the damaged property is more than the limit, your policy won’t pay the loss in full. You’ll have to pay the remaining amount.

Failure to Choose a Suitable Agent or Broker

Your agent or broker earn their income from the premiums you pay to your insurer. Therefore, they should meet your expectations. Whether you’d want to communicate with your agent through emails or phone, or even face-to-face contact, your agent should meet your needs.
Don’t stick with an unfavorable agent just because you don’t want to hurt their feelings by ending the relationship. If your agent isn’t meeting your needs, look for another agent who are willing to exceed your expectations.