Mistakes are a pain to everyone. But for businesses, mistakes are devastating. They open companies to huge liabilities and tremendous losses. For instance, in 2013 the 20 largest losses totaled $US8.1 billion. Luckily for us, business insurance exists to cover us when mistakes inevitably occur.
Recently, however, everyone has seemed to have a misconceived an opinion on insurance with some saying it’s a waste of money and others swearing by it. This article hopes to shed some light into the truth by exposing the five biggest misconceptions about insurance.
Misconception # 1: My business has limited liability because I work from home
This is simply not true. The premise in which you conduct business is actually not at all related to your operations. Just think, if you give negligent advice in regards to the structural soundness of a building, you will not be given a lesser punishment by virtue of working from home.
Related Article: 9 Ways to Save Money on Business Insurance
Misconception # 2: Having multiple insurers are better than one
The more the merrier, right? Unfortunately, this saying does not hold true in respect to insurance. You might think that paying for two insurers will give you twice the protection. However, the reality of the situation is that the insurance policies from two or more companies may overlap and even contradict each other.
This means, when an incident does happen you will be struggling to find the policies you are covered under, increasing the chance of miscommunicating with your insurers. Hypothetically, if you really want to be well protected it would be better to double your expenditure with one insurer than take on multiple policies.
Misconception # 3: The cheapest deal is best for my profits
This misconception comes from the belief that all liability insurers essentially “do the same thing”, so the key differentiating factor is price. Unfortunately, the truth is you get what you pay for. (Surprise!) Some insurers cover a lesser range of accidents than others. In addition, the claims procedure and the ease of lodgment vastly varies between insurers, so be sure to read up on reviews and ask for recommendations before making the final decision.
The price of insurance also depends on factors such as your claims history, business size and number of employees, so don’t be surprised if your premium is higher than a competitor’s. However, to give you a general idea of price, businesses spend an average of 5.74% of profits on insurance.
Misconception # 4: The cost of insurance exceeds its benefits
This misconception comes from the idea that all insurance companies are making huge profits by ripping clients off. However, the idea has two major flaws.
First, it does not acknowledge the fact that a large proportion of insurance profits comes from investment activities. And second, it does not consider that an uninsured accident can have ramifications greater than the monetary value of the loss. For instance, upfront payment of a large amount may cause a business to shut down as opposed payment of an insurance premium spaced over time.
Misconception # 5: I am on good terms with all my clients and employees. No one will sue me.
Many new business owners possess a naïve thought that everything will go smoothly for them. That is, clients will always be happy and employees will always be satisfied. However, this is simply not true. In the real world, there will always be conflicts of interest, accidents and oversights. It is amazing how a small issue can result in big disputes and major claims. So, no matter how understanding your clients and employees may seem, it does not hurt to protect yourself against the rare but possible chance of an adverse claim.
While, these five misconceptions are the most common amongst new business owners, many more exist. To address any future misconceptions, you should remember that having sufficient levels of insurance is vital for any business to sustain long term operations. If you want to find out more about business insurance please contact your insurance broker.