Share This Article
US small business owners put immense effort into developing and growing their operations. However, many do not realize they make significant insurance mistakes. By 2026, lawsuits, cybercrime, expensive repairs, and unstable economy are likely to cause a sudden closure of an improperly insured business. Statistics say 50-90 percent of all enterprises never recover from such incidents. This article highlights the main business insurance mistakes entrepreneurs make, how to prevent them, and how to find the best insurance solution.
10 Business Insurance Mistakes to Be Aware Of
Here are some of the biggest business insurance mistakes in the US.
Assuming Personal Policies Are Enough for Business Activities
A huge percentage of entrepreneurs think they do not need to get insurance since their personal homeowners’ or automobile policy will help. Moreover, many are sure that the cheapest option is good enough.
Why It Is a Mistake to Rely on Personal Insurance
Personal policies almost never cover business-related incidents like customers’ injuries in business premises or accidents with your delivery vans or business property.
How To Prevent the Problem
Buy a General Liability or BOP policy to eliminate the risk of uninsured claims.
Going After the Absolute Cheapest Business Insurance Policy
It is a known fact that cheap is rarely good. Entrepreneurs often choose the most inexpensive options without even thinking about the actual cost of coverage they receive.
Why This Is a Mistake
Low-priced policies are associated with numerous exclusions and minimal liability limit. As a result, the insurance is useless because you will face hefty out-of-pocket expenses anyway.
How to Prevent It
Go for a plan with sufficient coverage limits and proper exclusion list.
Ignoring the Importance of Cyber Insurance
Today cyber insurance becomes increasingly important due to ransomware, phishing, and other cyber risks. However, many small business owners are too optimistic or believe there are other options. For example, they might consider general liability insurance sufficient.
Why This Is a Bad Thing to Do
Without cyber insurance, you will be unable to cope with the aftermath of the attack, defend yourself, and recover.
How to Prevent Mistakes
Find a cyber insurance or BOP policy with cyber insurance added.
Neglecting the Importance of Workers’ Comp Coverage
Entrepreneurs with one or a few employees are usually afraid of the high premium rates and decide to omit the compulsory Workers’ Compensation insurance.
Why This Is a Mistake
Most states make it a legal requirement to have workers’ comp coverage if your business has employees. Failure to comply will lead to costly penalties and possible legal problems.
How to Prevent Mistakes
Purchase the mandatory policy and ensure you follow all safety guidelines to reduce premium rates.
Ignoring Annual Policy Review
All businesses evolve, meaning there will be additional risks you failed to foresee before. However, a lot of entrepreneurs continue using insurance policies purchased years ago, without realizing its limits and coverage restrictions.
Why This Is a Mistake
Without timely reviewing, you increase the possibility of having insufficient or outdated insurance.
How to Prevent Mistakes
Have an annual meeting with your independent insurance agent.
Purchasing Minimum Liability Cover
Most policies offer a liability limit of $300,000 or similar. Many entrepreneurs think the minimum amount is sufficient since this coverage will help them avoid major financial issues. That’s why they ignore the possibility of purchasing additional insurance.
Why This Is a Mistake
Medical costs and legal fees have significantly increased recently. Therefore, a basic plan is hardly able to provide protection against the potential risks.
How to Prevent Mistakes
Make sure to purchase $1 million liability cover or go for an umbrella policy for an additional $1-5 million worth of coverage.
Disregarding Professional Liability Insurance
Service providers usually omit professional liability insurance considering it is not very popular or not needed.
Why This Is a Mistake
If someone is hurt while receiving professional services, he or she will probably sue for a few tens or hundreds thousand dollars. The defense alone will be very expensive for a small enterprise.
How to Prevent Mistakes
Always have a Professional Liability insurance policy in place if you are a service provider.
Omitting Business Income Insurance
Business interruption insurance (aka business income) is a vital component of most business owners’ policies. Still, many business people are unaware of its significance.
Why This Is a Mistake
It provides compensation for losses caused by unexpected business shutdowns and interruptions.
How to Prevent Mistakes
Consider purchasing a business interruption insurance as a part of BOP.
Choosing the Wrong Insurance Agent/Insurer
The problem is in the desire of small business owners to buy insurance online to save money on broker commissions. However, this approach is associated with many risks.
Why This Is a Mistake
You will not be able to consult an insurance expert and make informed decisions.
How to Prevent Mistakes
Choose a reputable independent insurance agent.
Failing to Understand Your Policy and Its Restrictions
Unfortunately, many policyholders do not know much about insurance coverage they have. They usually do not read terms and conditions and tend to make mistakes.
Why This Is a Mistake
They might neglect the importance of policy documentation or fail to notice policy limitations.
How to Prevent Mistakes
Discuss policy exclusions and limitations with your agent and prepare for the worst.
Other Business Insurance Mistakes
There are many more things that should be done properly to avoid additional risks and expenses. Among others, we recommend paying attention to the following mistakes:
Failing to renew policies on time (coverage lapse)
Neglecting the importance of additional insurance coverage, including cyber, commercial auto, and umbrella liability
Poorly understanding the necessity of bundling policies for discounts
Failing to bundle various business insurance plans together to save on premium costs
The Actual Cost of Mistakes Made
One denied claim might cost you millions of dollars and ruin your business forever. Here are some statistics:
One major claim without proper insurance coverage results in losses from $50,000 to $500,000 (or even more)
Most small enterprises stop working for 6-12 months after experiencing a catastrophic loss
If your enterprise does not have a good structure, you might lose your personal possessions as well
How to Avoid Making Major Insurance Mistakes
If you want to protect your business successfully, you should consider implementing the following preventive actions:
Get an independent agent to help
Evaluate all business risks accurately
Obtain multiple quotes
Consider bundling various insurance plans
Update policy information every year
Keep thorough records and photographs
Raise liability limits and add umbrella policy
Implement safety and cybersecurity strategies to save premium costs
Learn all aspects of your policy
Ask questions if something is not clear
Examples of Common Business Insurance Mistakes
We’ve already mentioned numerous ways of failing to get proper insurance. Here are some examples of real-life mistakes that could be easily avoided.
Failure to Have Proper Workers’ Compensation Coverage
A Texas owner of a local restaurant did not buy proper Workers’ Compensation coverage. He assumed his employees did not need it. However, they had to file lawsuits due to accidents at work. As a result, the owner had to pay more than $180,000 as compensation.
Not Purchasing Adequate General Liability Policy
A consultant from California was sued for a few tens of thousands by an angry client. He assumed his general liability would be enough to cover the loss. But there were certain exemptions, and the entrepreneur ended up losing all his personal savings.
Disregarding Commercial Property Insurance
A retailer from Florida decided to save a few extra bucks, omitting Commercial Property Insurance and buying only general liability. Then, his enterprise suffered a great loss from hurricane damage and business interruption. He had to suspend his activity for several months.
FAQs About Business Insurance Mistakes
Question 1
What is the most common insurance mistake made by small business owners?
Answer
They buy the cheapest insurance plans and rely on personal liability instead of purchasing proper General Liability and Errors & Omissions insurance.
Question 2
Is there any way to avoid making mistakes in the future?
Answer
It is easy. Just work with a trusted independent insurance agent and have your business risks evaluated properly.
Question 3
Is there anything I should pay extra attention to when getting business insurance?
Answer
Yes, make sure to raise liability limits and add umbrella liability insurance to protect yourself properly.
Question 4
Do I need cyber insurance?
Answer
You definitely should because cyber crime and attacks become more and more common every day.
Question 5
Why do small enterprises often stop working shortly after an accident or loss?
Answer
Because they failed to insure themselves properly and do not have enough money to rebuild or repair.