Avoid These Small Business Insurance Pitfalls
It's wise for most companies to get some kind of insurance to protect against liabilities they may encounter over the course of everyday operation. In some fields, the government may even require certain kinds of insurance.
But many small owners may not be familiar with what their insurance requirements are or the best practices when shopping for rates or coverage. Read on to learn some of the most common pitfalls small businesses encounter and how to avoid them.
Not Understanding the Insurance You Need
There are two main kinds of insurance for small businesses. General liability insurance is the most basic kind and covers basic incidents -- for instance, if someone slips and falls in your shop and attempts to sue you.
The second type of insurance is professional liability insurance, which is sometimes called errors and omission, or E&O. This type of insurance covers errors (things you do wrong over the course of doing business) or omissions (things you have failed to do). This would apply if one of your employees were negligent over the course of their work.
Many small businesses will need both of these. But depending on the line of work you're in, you may also need additional insurance. For instance, if you're in a medical field, you may need malpractice insurance. If you're handling delicate personal information, such as SSNs and bank account data, cyber insurance will keep you safe if hackers breach your information.
Not Keeping Your Policy Up-to-Date
Your business grows and changes over time. Unfortunately, this can create gaps in coverage. If your insurance provider doesn't know about a major change to your company, they may not be able to insure you in case of an incident.
In general, you should notify your insurance agent of any of the following changes:
- Moving locations or opening a new location
- Hiring employees for the first time
- Adding a new driver to your company
- Buying new heavy equipment
- Forming a new legal entity
- Adding on a new product or service
Not Optimizing Your Deductible
When you need your insurance to pay on your behalf, you must pay a small amount -- the deductible -- before your insurance will act. The size of your deductible will vary from policy to policy. But in general, if your deductible is high, your monthly payment will be lower, and vice-versa.
Nobody expects accidents, of course, so the cost-benefit analysis around this can be tricky. But if you're in a generally low-risk line of business, you may want to find a way to lower your monthly payments and raise your deductible. This way, you'll pay less overall.
Forgoing Business Insurance
Of course, some businesses will try to skate by. They figure that if they're not in a very risky line of work, they don't need to worry about insurance. But this is a very risky gamble. Be aware that as you add more variables to your business -- more transactions, employees, clients, locations or vehicles -- the risk to your business goes up.
What's more, Texas places a number of insurance requirements on businesses, and every business owner should be familiar with them. In some cases, you may be too small to require insurance, or you may be able to get by because you're not in a particular line of work. But in others, you put yourself at risk of a fine, in addition to any liability you pay, if there's an incident.
As a small business, it's vital that you stay on top of your insurance requirements. By educating yourself about policies, updating your agent about any changes to your business, and thinking critically about your deductible and monthly payments, you'll keep your company safe in case of incident.
