7 common mistakes businesses make with their insurance.

1.         They don’t Buy Insurance

This is relatively the biggest mistake business owners make on insurance.  Insurance can seem like the benefit doesn’t justify the cost or maybe they don’t realize they need coverage.  Business owners can sometimes feel that as long as they follow the rules, operate legally, and do what they are supposed to do, they will be ok.   What many don’t realize is that even if they are sued and win, the cost of defending themselves against even an unfounded lawsuit may be enough to put them out of business.

2.         Buying the Wrong Insurance

Business owners who don’t work with an insurance adviser to assess their risk and secure the right coverage to protect their business from losses, run the risk of having to cover costs that are not covered by the wording of the policy they purchase.

3.         Buying Inadequate Coverage

Business Owners that do purchase insurance often don’t buy enough to cover their potential losses.  Business owners don’t realize this mistake until it’s too late and they are stuck paying for solicitor fees and legal settlements out of pocket.  Purchasing inadequate coverage is only slightly better than not having any coverage at all.

4.         Going Without Business Interruption Insurance

You can cover your office or factory, which is nice if it burns down, you can get a new one built. But what about the sales or income you make during this time. This is often not covered and is called business interruption insurance. It provides financial support when something interrupts your ability to conduct business.  Going without this coverage can endanger the business as much as going without liability or property coverage.

For example, there is a fire in a retail shop that destroys or damages all the merchandise forcing the shop to close for three weeks.  The business owner’s property insurance covers the lost merchandise, but without business income coverage, the business owner has no way to recover the lost income from having the shop closed for that period of time.

5.         Misunderstanding Coverage

Business owners who buy the right amount of the right coverage can still run into problems if they don’t understand what things are specifically excluded from their policy.   Most business insurance policies are full of exclusions and business owners who don’t understand these exclusions can be left holding the bag when they thought they were covered.

This is why a professional adviser is more than worth their fees, because for a small extra cost compared to total cost of the policy, the adviser can make sure these gaps or exclusions are either explained to you so you can make an informed decision, or covered in comparing two different suppliers. Some advisers who specialise in certain areas can even negotiate a specific wording in an exclusive policy for your occupation, so check if this is available to you as well.

6.         Low Deductible

As a business owner you can decrease your costs while still protecting your business by increasing the deductible on your policy.  Carrying a low deductible on your policy may seem like the better business decision because it offers more protection, but it may not be the right decision for your business.  High deductibles reduce your overall operating costs yet still protect you from the kinds of losses that could compromise your business.

The best way for business owners to ensure they have the coverage and protection they need is to work with a professional insurance adviser. The adviser can assess your needs and then help you find the best insurance package to meet your needs at the right budget.

7        Thinking going direct is cheaper

There is no doubt in the Australian market, that there are cheap direct insurance policies available and lots of ads are on the radio and on TV that are attractive to the business owner. But going direct is not necessarily cheaper for the business owner in this market. A large adviser network can negotiate very good insurance pricing for their SME customers – and often with policies that are specific to an occupation or industry. Often, the direct insurer products are general, and have exclusions to allow for ‘cheaper’ pricing.

So don’t make the mistake of thinking going direct is cheaper. Because in the long run if the cheap policy doesn’t cover your needs it may well be the most expensive mistake you make when a claim is not covered.


Should you have any questions, please contact an Adviser at Lewis Insurance Services on (07) 3217 9015 or email enquiries@lewisinsurance.com.au


Reference:  Adrian Kitchin, Managing Director, Insurance Advisernet Australia Pty Ltd (www.insuranceadviser.net), Nov 2014.