Insurance Mistakes Small Businesses Can’t Afford to Make

All small business owners need insurance. The type of insurance is dependent upon several factors including whether you hire employees, the location of your business, and the type of business you operate. One thing all business owners have in common when it comes to insurance is this: Costly mistakes.

Indeed, making mistakes when it comes to choosing and maintaining insurance can be incredibly costly. Here’s what to avoid:

Business insurance mistakes

1. Insured Entities

At the very top of your insurance policies will be the named entities. Leaving even a single entity off can mean losing your shirt should the need arise to make a claim. Every single entity that has a stake in your business must be included in your insurance policy. This means that you, as the owner, must be included, along with any separate operating company included in your business.

It’s not unusual for small business owners to set up LLCs, or limited liability corporations. You may have an LLC that owns your office or building, another that employs your workforce, and another that handles your books. Each entity needs to be insured by all of your policies.

2. Low Coverage Limits

There are very few instances where your coverage will be too high. On the other hand, one of the most common mistakes that business owners make is setting limits too low. Don’t attempt to set coverage limits on your own.

Create a spreadsheet for your insurance agent and seek his help in determining how much coverage you require. Your spreadsheet should include a list of and value for all of your physical property, the contents of those properties, your business income, and any other assets that belong to your company.

3. High Deductibles

Don’t fall into the trap of setting your deductibles incredibly high just to save a few dollars on your premiums. If you run your business properly, you stand little chance of being sued.

In the case of a fire or theft, a high deductible may be out of your reach, causing you to be unable to replace your possessions or restore your property. Low deductibles are more than worth the extra money that you’ll pay for your premiums.

Insurance claim form

4. Business Income Insurance

Do you know what business income insurance is? If not, you aren’t alone. Most owners don’t consider this type of insurance when purchasing policies. Business income insurance replaces the income you miss out on in the case of a catastrophic event.

If your property sustains fire damage, for example, and you are unable to operate while your building is being reconstructed, you lose income. Building insurance will pay to have your structure rebuilt, but what about the income that you lose while you are waiting to reopen? That’s where business income insurance comes into play. Your coverage will replace your lost income while you wait to open your doors to customers.

5. Umbrella Liability

An umbrella policy provides extra coverage for your business. You will have added protection on top of your general and employer’s liability coverages. Umbrella liability is of particular importance if you hire employees.

One incident with an employee can cause you to lose your business if you aren’t properly covered. Consider what would happen if your employee caused an accident that injured or killed others. Chances are slim that your regular policy would be able to cover all of the costs, resulting in the bankruptcy of your business.

6. Multiple Agents

Never utilize more than one insurance agent for multiple business policies. You’ll quickly run into a situation of inadequate coverage or overlapping, unnecessary coverage. Purchase and maintain coverage from one insurance provider. A site like trader quote can help you compare multiple insurance companies.

It’s a better idea to shop around for the company that offers the best premiums on all of your policies than it is to purchase single policies from multiple companies. Knowing the type of insurance coverage that you need can help you secure the best quotes.


As the owner and operator of a small business, it’s important that you don’t make mistakes when it comes to your insurance. Even small oversights can be costly should you find it necessary to file a claim. If you are unsure of the types and amounts of coverage that you need, reach out to your insurance agent for assistance.