Costly Business Insurance Mistakes That SMEs Must Avoid
Every industry is distinctive in its way and faces various unique risks. These risks can affect a business at any point, regardless of size. Business risks can range from an employee injury to a serious lawsuit. Any risk, small or big, can cause financial loss and throw your business off its path- if you are not prepared.
Appropriate insurance coverage is one of the best ways any business can be prepared to deal with these risks and possibly avoid them. Companies should purchase several insurances to protect their business from sudden liability damage and financial loss. Each industry needs a different combination of insurance, and it is crucial to understand which insurance your business needs.
Most big companies have special teams/agents researching and understanding the proper insurance needed. However, SMEs try their best to avoid spending more than they need to and make countless business insurance mistakes. Many SMEs don’t believe they are as vulnerable to these risks due to their size.
The fact is very wrong; SMEs are as likely to be affected by these risks. Hence, they must avoid these business insurance mistakes to get the most out of their insurance.
The article will discuss SMEs’ top business insurance mistakes and why focusing on insurance is essential.
What Are Common Business Insurance Mistakes?
Unclear Business Description
When purchasing insurance, the business must inform the insurance broker about what the company does and its purpose. This communication must be as detailed as possible; the company should not miss out on a single fact. Unfortunately, many SMEs make this business insurance mistake by providing a brief or unclear business description.
An unclear business description mistake can cost a business a sizeable financial loss. If an SME doesn’t give a factor about their business and suddenly a claim occurs regarding that detail, the insurance will not cover it.
For example, an antique shop is noted as a furniture shop by the insurer. The unclear business label will cost the business a large loss in case of any property damage, like a fire. The cost of a 150-year-old antique piece is much higher than any type of furniture, and the risk comes with it as well. Due to the unclear description, the insurance will not provide an accurate cover if any piece is damaged.
Hence no information should be withheld or poorly described when providing a business plan and description. The insurance company uses this description to give the business the best risk cover.
Not Reading the Terms and Conditions
We get it; insurance policies can be a long read and full of confusing details. However, as a business owner or manager, you must read every single bit. Reading the terms and conditions of insurances helps you understand everything and allows you to make changes before it’s too late.
The information will help you understand the exclusions and detailed coverage of the insurance. Therefore, when you are faced with a claim or a lawsuit, you instantly know whether you are covered or not. In addition, the knowledge can help you gain the best coverage and understand possible risks.
Additionally, if your business needs a better cover, the changes can be done quickly when you know what you want. This can help you understand if you need extensions to protect your business further. An example, product liability insurance does not cover product recall claims (this can come as an extension). However, many business owners miss this detail when they skim through the policy, a common business insurance mistake. So next time you get an insurance policy, make time to read it all.
Not Enough Research About Risks
SMEs should purchase insurance to deal with specific risks, not just for the sake of it. SMEs must research all their risk and find insurance that covers them. Every company is unique due to its location, products, service, and target market. Each one of these factors can change or increase the risks.
A company must conduct professional research to avoid either purchasing the wrong insurance or not covering enough risks. Companies can also research to find industry expert insurance providers.
An example of this business insurance mistake is how many SMEs do not purchase cyber insurance just because they believe only IT businesses need it. Any business, no matter the industry, needs cyber insurance, and with comprehensive research, you will understand SMEs are the main victims of cyber-attacks.
Going For the Cheap Option
Saving money is crucial when running an SME, but there are some things you shouldn’t avoid or buy the cheapest option. One of these things is insurance. This doesn’t mean you need to spend a lot on insurance, or the more expensive the better. But you must use your research to find and purchase the insurance that perfectly fits your specific needs, even if it costs a bit more.
The internet is full of cheap insurance certificates/policies that provide the most basic protection. At that point, you will be glad you have saved money, but when faced with a claim that isn’t covered, you will be full of regret.
For example, cheap general liability insurance may barely cover enough of the claim and. will be like your business paying for the whole claim out of your pocket. Preferably, getting insurance through a trusted company, broker, or agent is a better option. They may be a bit more expensive, but they are experts and provide a more intensive cover.
Renewing Without a Review
As your business grows, you need to change a few things, such as hiring more staff, renting a new office, and increasing your insurance coverage. When the business changes, so do risks and insurance needs.
Many SMEs make this business insurance mistake by renewing their insurance policy without rethinking what has changed and if they need to increase their cover. A growing business needs more coverage, and when you inform your insurance firm beforehand, they can change the policy to fit your growing business better.
For example, your business may have bought more equipment or new property. Your old property all risk insurance will only cover the property noted by the insurer. So, if your new property is damaged, the insurance will not cover it unless you have updated your coverage. Therefore, every time your business changes, grows or expands, you must update your policy as soon as possible.
Why Is the Right Insurance Crucial?
Every company worldwide needs insurance to grow and succeed safely. But, if your business has less than three insurances, it is not enough. Every industry has countless risks that cause operational, financial, reputation and liability damage.
Hence it is vital to have a specific range of insurance to cover the most risks. Even if premiums seem expensive, it will be worth it when facing a claim. Each industry and company have a different set of insurance they need for their unique risks. As mentioned, even if two companies are in the same industry, they still may need different insurance combinations and cover.
Avoiding these business insurance mistakes can make a big difference and help you get the most out of your insurance policies. Insurance is the safety net that allows you to focus on your growth rather than risks.