7 Small Business Insurance Mistakes and How to Avoid Them.
As a Nova Scotia business owner, having the right business insurance coverage is essential to protect your company from unexpected risks—no matter the size of your operation. However, some common mistakes could leave your business vulnerable. This checklist highlights seven insurance oversights small business owners often make and provides tips on avoiding them!
1. Underinsuring Your Business
The Mistake: Many business owners opt for minimal insurance coverage to save money, but underinsurance can result in significant financial losses when a claim arises. Property damage, theft, or equipment failure might cost more than your policy covers.
How to Avoid It: Regularly review your policy and assess the actual value of your assets, such as property, equipment, and inventory. Ensure your coverage reflects your business’s current needs, and consider business interruption insurance to cover lost income during downtime.
2. Not Having Liability Insurance
The Mistake: Small business owners may skip liability insurance, thinking their operations are low-risk or home-based. However, even minor incidents can lead to lawsuits and costly legal battles. Read our blog, The Difference Between General and Professional Liability Insurance, to learn more!
How to Avoid It: Invest in general liability insurance to cover legal defence and settlement costs if your business is sued. Professional liability insurance (errors and omissions) is essential for service-based companies to protect against negligence or poor performance claims.
3. Overlooking Industry-Specific Risks
The Mistake: Some small business owners assume a general insurance policy is enough without considering the specific risks tied to their industry. This can leave gaps in coverage that may only become apparent when an issue arises.
How to Avoid It: Every industry has unique risks. For example, a hairdresser might need product coverage, while a contractor may require additional liability protection. Work with an insurance broker who understands your industry to tailor coverage that addresses the risks specific to your line of work.
4. Failing to Update Your Policy as Your Business Grows
The Mistake: A common error is setting up an insurance policy when the business starts and not updating it as the company grows. Expansion, new hires, or acquiring additional assets can all impact your insurance needs.
How to Avoid It: Regularly update your insurance policy to reflect changes in your business. A yearly review with your insurance broker ensures your coverage is aligned with your current operations and risk exposure, helping you avoid coverage gaps.
5. Failing to Insure Potential Income Losses
The Mistake: Many small business owners overlook the impact of potential income loss from unexpected events, assuming property insurance is enough to safeguard their business. However, if your business is temporarily shut down due to a covered event, such as a fire or natural disaster, a lack of income protection can have a severe impact.
How to Avoid It: Consider business interruption insurance, compensating you for lost income during a temporary closure. This coverage can help pay for ongoing expenses, such as payroll and rent, ensuring your business stays afloat while you recover from the incident.
6. Overlooking Insurance for Cyber Attacks
The Mistake: Many businesses assume that cyber threats only target large corporations, but small businesses are increasingly vulnerable to cyberattacks due to weaker security systems. Check out our blog on the value of cyber insurance for your business to learn more.
How to Avoid It: Invest in cyber insurance, which covers data breaches, ransomware attacks, and the costs of restoring lost data. This insurance can also help cover legal fees and fines related to a cyber incident. Cyber insurance is critical if your business stores customer data or handles transactions online!
7. Choosing Insurance Based Solely on Price
The Mistake: Budget-conscious owners may be tempted to purchase the cheapest policy available, but low-cost insurance often means limited coverage or higher deductibles, leaving you under-protected.
How to Avoid It: Insurance brokers essentially have access to the same market of insurance providers. Therefore, policy cost is primarily driven by the selected coverages, liabilities and endorsements. So, choosing an insurance broker that can effectively assess your business risks and exposures is important. They will help you structure an insurance policy that is just right for your business. As a trusted insurance partner, you should also rely on them to provide ongoing service and help you make a claim if needed.
Business insurance is a crucial safety net for your small business, so avoiding these common mistakes is essential to ensure there are no gaps in protection. Addressing these potential oversights and regularly reviewing your policies ensures your business is set up for long-term success. Contact one of our expert commercial and business insurance advisors today to review your policy and make sure you and your business are well protected.
