The Most Common Mistakes Small Businesses Make With Insurance

Managing a small business is no easy task, and one responsibility that sometimes falls through the cracks is finding the right insurance policy for your business.

As your business changes and grows, new employees are added, or you move locations, making mistakes with your small business insurance is easy. Here are three of the most common pitfalls to avoid.

1. Not having enough coverage

Just like with your home and auto insurance, you need to make sure your business insurance policy is adequate in case something goes wrong. For example, your small business property insurance may cover the replacement of your business' equipment in case of fire or theft, but it may not cover the replacement of the building and property itself.

Similarly, inadequate liability coverage could mean incurring significant out-of-pocket expenses if someone tries to sue your business. If you don't have enough insurance to cover the costs, you may have to tap your small business checking account to cover the cost.

A recent Next Insurance survey showed that 29% of small businesses don't have any small business insurance.

How to avoid it: Talk with your insurance agent to review the details of your insurance policies so you know exactly what out-of-pocket costs you may be responsible for. If you don't think your small business can afford the extra expenses, get a quote from your agent and consider increasing your coverage.

2. Keeping an old insurance policy

Many small businesses change over time. They add employees to the payroll, move to a new location, buy more equipment, modify their stores, and so on. These can change the type of insurance policy you need, as well as the level of coverage.

You're not alone if you haven't updated your policy recently. Nine out of 10 small business owners aren't confident they have adequate insurance.

How to avoid it: You know that annual email you get from your insurance company informing you about your renewal? Use it as a reminder to think through some of the significant changes to your business over the past year and whether you need to update your policy.

3. Not knowing what your insurance policy covers

A few weeks ago, I was updating some personal files and couldn't remember if my term life insurance had expired or if I was still covered. After searching through some paperwork, I finally found my policy, which said I still had years left on it.

I was relieved, but this is a good example of how easy it is to not know the details of your insurance policies. Next Insurance noted in its survey that 96% of business owners don't know the basics about small business insurance.

How to avoid it: Read through your policy and talk with your insurance agent. You don't have to get into all of the details, but you should at least understand the basics of your coverage and what you could be financially liable for in certain situations.

As a small business owner, you're responsible for every aspect of your business. It's not surprising that insurance sometimes falls by the wayside with everything else you're keeping track of. If you need help knowing where to start, The Ascent's small business hub is an excellent resource for everything from insurance to small business credit cards.