September 24, 2019

The Real Cost of Cheap Insurance

As a small business owner, you wear many hats.

From the hat of an accountant, to a manager, to an HR professional, to a trainer, successful business owners are constantly shifting gears to stay ahead of industry trends.

In reality, even though most owners are masters of their craft, few are masters of all the other roles they are forced to play; especially when it comes to business insurance.

In all fairness, learning a specialized trade like commercial insurance simply doesn’t make sense for the average business owner. Unfortunately, this knowledge gap often leads to mistakes when it comes to shopping for coverage. While some mistakes may carry a consequence as minor as overpaying on a premium by a few dollars, others can unfortunately bring some pretty serious consequences.

This guide was written to help you make a more informed decision the next time you’re buying business insurance.

We get it.

Keeping the doors open often requires prioritizing cost in purchase decisions.

Understandably, when most business owners are shopping for commercial coverage, their number one priority is finding the lowest premium cost.

However, buying the cheapest business insurance policy available oftentimes ends up costing an owner much more down the line.

In the following sections, we will help you understand the different parts of a business policy and why each one is important to consider in your purchasing decisions.

Armed with the information in this guide, the next time you’re ready to buy insurance, you’ll be able to make an informed decision that will limit your risk exposure and seriously lower the possibility of an unexpected cost in the future.

The Importance of Getting Quotes From Multiple Carriers

When you’re ready to purchase business insurance, it can be tempting to just go with the first offer that seems like a good deal.

As you probably know, the first “good deal” you see oftentimes ends up not being the best deal available.

The next time you’re insurance shopping, you should make sure your insurance broker is getting quotes from multiple insurance providers and presenting your options in a way that’s easy for you to understand. That way you’ll be able to carefully consider the types of coverages included, payout limits, deductibles, and disclaimers of each.

In comparing different policies, you’ll likely find that the cheapest option oftentimes ends up cutting corners in one of these three areas. In shopping for your policy, your goal should be finding the package that provides the best coverage at a reasonable price.

It’s important to note that if your insurance agent or broker is unwilling or unable to provide you this level of service, you would probably be better off exploring other options.

Important Coverages to Include In Your Policy

One of the most critical considerations in shopping for commercial insurance is the actual coverages contained in your policy.

Unfortunately for many small business owners, the money they saved with their budget policy came at the expense of a coverage gap on their commercial property.

Just because an insurance policy includes the proper coverages to protect a business owner’s assets, doesn’t necessarily mean it has adequate limits to cover a total loss. All too often, failing to buy adequate limits ends up with a policyholder assuming some of the financial responsibility of a total loss claim.

Just because you have a policy doesn’t mean it was written in a way that will automatically cover the cost to repair or replace damaged property.

That’s why it’s important to pay special attention to the limit of insurance outlined in your commercial property coverage, making sure your policy is designed to cover any loss in full that you can’t cover with cash on hand.

The last thing you want is to get stuck absorbing the remaining loss when your commercial property coverage limit falls short.

Adding to the importance of securing good protection for your commercial property, it’s also important to verify your policy includes a coinsurance clause or agreed value provision. Failing to maintain a minimum amount of insurance can be grounds for imposing a penalty or limiting payment on a claim in a way that will not cover the full amount of a loss.

No matter what some fly by night insurance agents might want you to believe, under-insuring your property is a terrible way to save money on your business policy premiums.

The Hidden Danger of Low Liability Limits

Regardless of industry served, virtually any business is at risk of being hit with a lawsuit.

While most owners would never expect to be sued, the sad fact of the matter is lawsuits against businesses are becoming increasingly common with the passing day.

Because no business owner can accurately predict who will sue their firm, when a lawsuit will be filed or the damages plaintiffs will seek, it’s critical to carry insurance designed to cover a wide range of legal liabilities.

As you’re probably aware, all it takes is one large claim to put a small company out of business. Turning our attention to general liability and commercial auto liability insurance, the same logic should be applied.

It’s also important to remember that many prospective landlords, business partners and vendors will not do business with an entity that doesn’t carry a minimum of $1 million in liability coverage.

This is especially relevant for businesses interested in government contracting as failing to carry the proper amount of coverage can result in a government entity refusing to issue permits, allow events, or perform activities on public property.

At the end of the day, no matter how attractive a discount policy might look on the surface, you should never skimp on limits to save money.

If you’re unsure of how much insurance you need, talk to one of our business insurance experts today.

Low Deductible Vs. High Deductible Policies

While some insurance firms would like you to believe opting for a high deductible is a good way to save money, this is one of the worst ways to approach business insurance.

To fully understand the importance of a low deductible, you should look at it in terms of a form of self-insurance.

Basically, the lower your deductible, the lower the risk to your business. Being forced to pay a high deductible in the aftermath of an unexpected loss can put your business in a tough financial spot. By opting for a low deductible on your business policy, you are helping to ensure you will never be out of pocket for more than you can afford in the face of a loss.

That said, if your business has solid cash reserves, you may think about increasing your deductible a bit to save money in the long run. The most important consideration in buying insurance is making sure you are taking a calculated risk with your deductible.

Essentially, you should never bet more than your business can cover on the spot.

Increasing Your Coverage as Your Business Grows

Another way some people try to save money on their business insurance involves failing to report changes to their business operation to their carrier.

While this may seem like a great way to save money in the short term, it almost always ends up costing more in the long run.

Non-reporting new hires, location changes, expansions, expanded product offerings and other changes is viewed as a soft form of insurance fraud.

Not only does this strategy carry the risk of getting your coverage canceled, it is also the most surefire way to create a coverage gap in your policy. These gaps expose your operation to unnecessary risk, and in extreme cases, can end up costing you your entire business.

For example, let’s say you hired a new employee and opted not to report the hire to your carrier.

Should that employee get hurt on the job site, they would not be eligible for workers compensation under your old policy. Consequentially, they could end up suing you for the damages they incurred, easily costing you millions of dollars out of pocket.

Best practice says you should reevaluate your business insurance needs every several months.

At minimum, each time you renew your policy, you should take a serious look at how your operation and risk exposure has changed since the last time you bought coverage.

A good agent will help you through this process, making sure you are minimizing your chance of a coverage gap. The team at Tomins always performs a detailed policy review to help protect every business owner we serve when it comes time to renew.

The Danger of Skimping on Business Income Insurance

Also known as business interruption insurance, business income insurance can help replace lost income as the result of another covered claim that interrupts your business.

In certain situations, business income coverage can even cover the added expense of operating your business out of a temporary location while your headquarters is being rebuilt.

Often sold together with extra expense coverage (helps cover electricity, utilities, etc.), the combination of these two coverages is the best way to help make sure business keeps booming in the face of an unforeseen loss.

The last thing you want is to have to sell your brand-new building in the aftermath of a fire or other peril because you couldn’t cover your bills during the rebuild process.

If you’re ready to work with an insurance partner that works as hard as you do, our business insurance experts are ready to start learning about your needs now.

Tomins—mindful Insurance today, successful business tomorrow.

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