Top 5 Insurance Mistakes Small Business Owners Make

After more than a decade on the carrier and agency side of Connecticut insurance, the mistakes small business owners make are remarkably consistent. They are not stupid mistakes. They are the mistakes of busy people who bought a policy to satisfy a landlord and then went back to running the business. Here are the five we see most often, what each one costs when it goes wrong, and the fix.

1. Insuring the business on a personal policy

The most common one, by far. The truck with the company name on the door is on a personal auto policy. The tools are “covered” under the homeowners policy. The home-based business with clients coming and going has no liability coverage at all.

Personal policies exclude business use almost across the board. A claim in a work van on a personal auto policy can be denied outright, which means you are paying for the other driver’s injuries and your own van out of pocket. Homeowners policies typically cover a small amount of business property and no business liability.

The fix: a commercial auto policy for any vehicle used for work, an inland marine floater for tools and equipment, and a general liability policy or BOP for the business itself. For a small operation these are less expensive than people fear, and they are the difference between a covered claim and a denied one.

2. Waiting to buy workers’ comp

Connecticut requires workers’ compensation for essentially every employee, including part-time and seasonal. Yet the first hire often happens in a hurry, and the policy does not. Meanwhile, contractors who hire subcontractors without collecting their certificates of insurance find out at audit that uninsured subcontractor payments were added to their own payroll and charged premium.

Operating without required workers’ comp in Connecticut exposes you to penalties and, worse, to the full cost of an injured employee’s medical bills and lost wages, with no coverage and no protection from a lawsuit.

The fix: bind workers’ comp before the first employee’s first day. If you hire subs, collect a certificate of insurance from every one of them before they start and keep it on file for the audit. If you are a sole proprietor working for general contractors, decide deliberately between a minimum policy and a waiver rather than being surprised on site. More on contractor insurance in Connecticut.

3. Not reading the certificate request

A general contractor, landlord or client sends over their insurance requirements. The business owner forwards it to the agent with “can you send a certificate?” and assumes that is the end of it. Then the GC’s compliance department rejects the certificate because the policy does not carry additional insured for completed operations, or primary and non-contributory wording, or a waiver of subrogation, or the limits are $1 million short.

A certificate can only reflect what is on the policy. If the endorsement is not there, the certificate is not compliant, and either the job is delayed or, worse, the business signs a contract promising coverage it does not have.

The fix: send the actual contract language, not a summary, before you sign it. A good agent reads the insurance section and tells you what matches, what does not, and what it costs to close the gap. We do that the same day. More on certificates of insurance.

4. Underinsuring property and skipping business interruption

Owners tend to insure equipment and inventory at what they paid for it years ago, and many skip business interruption coverage entirely because it feels abstract. Then a fire closes a restaurant in Bristol or West Hartford for eight weeks. The property policy pays to replace the kitchen at depreciated value, which does not buy a new kitchen, and nothing replaces the eight weeks of lost income while rent and key staff still have to be paid.

The fix: insure property at replacement cost with limits based on what it would cost to replace today, and carry business interruption coverage sized to your actual monthly revenue and fixed costs. A BOP makes this simple for most small businesses. For restaurants, add spoilage and equipment breakdown. Restaurant insurance in Connecticut.

5. Never reviewing the policy after it is bound

The business added a second location, doubled its payroll, started offering a new service and bought two vans. The policy is the same one written three years ago for a one-person operation. Growth changes your risk, and it changes what you are covered for. New operations may be excluded. Payroll and revenue that exceed what was declared produce an audit bill. A new service, like snow plowing added to a landscaping business, may be specifically excluded on the GL policy.

The fix: a fifteen-minute review once a year and a phone call whenever something changes: a hire, a vehicle, a location, a new line of work, a big contract. This is what an independent agent is for. We set the renewal review on our calendar, not yours.

The pattern

Every one of these mistakes comes from treating insurance as a box to check rather than a system to maintain. The businesses that avoid them are not the ones that spend the most; they are the ones that talk to their agent when something changes. If any of the five sound familiar, send us your current policies or call (860) 672-1733 and we will tell you where the gaps are. More on business insurance in Connecticut.