Every business owner knows there are things that need to be done right to just stay in business. Insurance is one of those things. Done properly, you can minimize your costs in time and money while protecting all you build. Done poorly, run the risk of business-sinking financial disasters and you can waste a lot of time and money along the way. Here are five common insurance mistakes business owners make and how to avoid them.
Fortunately, some of the most costly mistakes owners (and agents) make are known—along with how to avoid them. Let’s review some of the more common ones.
1. Telling an agent you only care about price.
It’s easy for an agent to cut a lot of important coverage from a policy to make it ‘look’ cheaper. A good agent (or any source of insurance) will work to identify your unique set of risks, preferences, risk tolerances to customize each policy to fit you and your business, and help you avoid costly insurance mistakes.
If you say all you want is cheap, some agents will assume you don’t care about coverage, and do everything they can to get that price low, without explaining what they’ve done to get there. (Why would they? You just said all you care about is price). This causes many agents to:
- Strip away coverage and lowering limits to the minimums.
- ‘Accidently’ underreport payroll & revenues to the company, knowing that by the time the company catches it and raises premium, you’ll have already purchased the policy.
- Think of you as a high-risk and less-valuable client placing you with companies that specialize in stripped-down ‘swiss cheese’ policies.
The hidden secret most agents won’t tell you is that when you shop for insurance, the level of coverage you’ve chosen in the past is often a factor in today’s pricing. That means, if you’ve chosen low levels of coverage, not only do you risk not having the coverage you need but you also end up getting stuck paying higher premiums because you look ‘high-risk’ to all companies.
You want good coverage at the best prices you can get. You don’t want to be labeled high-risk.
2. Just buying policies without customizing them to fit you and your business is another insurance mistake.
The whole point of insurance is to cover you against your unique set of risks—with your preferences and risk tolerances in mind. Too many sources of insurance (agents and websites) jump to selling you a policy type (package, work-comp, auto, etc.) without exploring what your risks and preferences actually are?
Expect any source of insurance to help you identify your own unique set of risks. Ask them questions. What coverages do you think I need? What kinds of claims or disasters do you think could happen to me given what you know about my restaurant or my life?
Use this information to go through the options. Cut out what you don’t want or need and make sure you add in what you do want or need. Do this a few times with different sources of insurance and you’ll start to get a really good idea of what the options are and what you want. This will make shopping easier because you won’t just be trusting/assuming the sales person is throwing in what you need—you’ll know better.
You really want to avoid swiss-cheese policies that won’t be there for you when you need them.
3. No holistic planning – also allowing for major gaps in coverage.
This can mean having awesome coverage for your business but YOU personally are severely underinsured. What happens if you kill a high-income earner driving your personal car? Does your personal auto insurance have good limits there? What happens if your business partner dies (do you have key-man term life to buy out spouse’s interests)?
Often, any single agent or insurance company you work with will fail to do a comprehensive risk analysis and comprehensive planning for your business and you. Most of the time, this is because they are focused on selling the products they happen to have. For small business owners, this can create a very real chance for gaps in coverage because they don’t have internal risk managers helping them look at things from 20,000 feet.
One of the best ways to avoid this type of insurance mistake is to work with a truly one-stop shop that can provide a team of people that work together to cover all the bases for you. Make sure to ask every insurance expert you work with, “What am I missing?” It doesn’t mean you have to purchase more, but it might be the thing that helps you discover the risky gap before it’s too late.
4. Not taking advantage of free risk reduction resources!
It’s not a surprise that businesses that make it a priority to keep employees and customers safe, tend to have less injuries/claims (along with fewer of the additional expenses that come with it). Too many injuries will eventually result in increased premiums and even the closure of the business if it becomes so bad as to make the business uninsurable or unable to pay the premiums.
The solution is to make safety a priority—and that doesn’t happen by accident.
The good news is that some insurance companies can help you with this. They are incentivised to help you increase safety measures to decrease the chances of an injury/claim. When you shop for insurance, ask what kinds of risk management resources they might have.
You might be surprised how these services (most often free) can really help!
5. Not shopping every few years – allowing for premium creep.
Each company is constantly tinkering with their rates and benefits offered to try and gain an edge over their competition, especially when it comes to winning new clients. Who offers the best coverage at the best price, for each of your policies, can change every few years. Not only that, sometimes discounts or credits that were offered when you first signed up can expire with time resulting in what some call “premium creep.”
If you don’t take the time to explore options every few years, you really don’t know if you’re getting a good deal or not—and you might be surprised at how much money you’re wasting when you finally get around to it.
Perhaps getting all of this just right feels like a pain – given all the other demands in your business. If so, we understand!
Please know that one of our favorite work-comp resources and providers in all 46 states is Mylo. They take everything you might like in your local independent agency and make it even better:
- 100+ of the leading companies in the states
- licensed experts in all 50 states
- solid online presence accessible anywhere
- leading-edge tech including instant quotes for some types of policies
- Backed by one of the largest brokerages in the world: Lockton—and the list goes on.