When starting a business, there are many elements you need to consider to ensure it’s smooth and successful. But one essential aspect is making sure you have the right type of insurance coverage with protection specifically designed for your business or industry.
There are different types of insurance policies available that cater to the diverse needs of businesses. Because coverage provisions are specific, complete coverage often requires multiple policies. Insurers sometimes bundle related policy types that are frequently purchased together, helping to prevent insurance common insurance mistakes that can leave coverage gaps.
Below are the most common mistakes founders make when insuring their business.
Even in seemingly low-risk industries, there is a possibility of work-related injuries. The consequences of not having workers’ compensation coverage can be steep, even leading to business closures in some cases. Saving money is always important, particularly when your business is new, but passing on workers’ compensation coverage isn’t the best place to cut costs.
Even if you don’t have employees, there are certain instances in which workers’ compensation is still necessary. Below are some thoughts to consider regarding this policy.
Business owners often choose to form an LLC (Limited Liability Company) to protect their personal assets from business-related liabilities. But another costly mistake that many business founders make is not purchasing general liability (GL) insurance, thinking that being an LLC will protect them from all liabilities – not true.
Forming an LLC only protects your personal assets — and not in all cases will safeguard your house, car, and other physical properties if the company shuts down, but if your business is named in a liability lawsuit, you may still be at risk personally. There are countless examples of business owners who became personally liable for business-related liabilities. Here are some scenarios where general liability is still needed even if you are an LLC:
Yes, it is possible to have too much insurance. Startup companies often purchase every kind of insurance policy they can think of just to protect their business against any possible risk or potential liability. But there’s such a thing as being over-insured and it’s one of the common insurance mistakes that founders make. In some cases, the additional policies purchased, provide protection against risks that aren’t relevant to the business at all. An insurance review with your agent can uncover the specific types of policies your business needs to be fully protected.
The idea of being well protected feels good but think about the amount of money you are throwing away by buying insurance products that you will never use or need. To avoid common mistakes such as over-insuring your business, always:
Many people think that having a homeowners insurance policy will protect their home-based company against risks and liabilities. This is a common misconception for businesses run out of the home and can lead to costly losses. You can’t rely on your homeowner’s policy because it doesn’t provide coverage for any business property, including related structures and equipment used for business purposes, nor does it provide coverage for business-related liabilities, such a slip and fall accidents if you have business-related visitors.
You need both home and business insurance policies, even if they are located in the same building. Imagine this scenario: One of your friend visits and is accidentally injured inside your home. Even if they are there for personal reasons, an insurance company may deny your claim if they suspect the visit was a business consultation. To ensure proper coverage, consider the following policies to protect your business:
Among the most common insurance mistakes of business owners is the failure to update policies as your company grows. Your insurance may be well-suited for your business ten years ago — but as your business grows, both the types of coverage and your coverage limits should be reviewed and updated as needed.
Adding two vehicles, hiring 10 more employees, expanding to another warehouse, buying new equipment, and other types of business expansion all point to a successful and growing business. But these changes also require a reexamination of your insurance coverage. If your policies are structured to provide the minimum required coverage, your business may not be as well protected as you think. As your business grows, your risk of losses also grows. You should consider adding a health insurance policy to attract and retain employees for your growing business, or you may want to modify your commercial car insurance policy to provide higher coverage limits.