You’re starting your own business and ready to take over the market. While it is great to have big goals, you need to make sure that you don’t make major mistakes in your small business.
One of the things new business owners often have problems with is understanding small business insurance. If you don’t get the right insurance for your business and understand your policy, you’re in for trouble.
Continue reading this article to learn 8 small business insurance mistakes you need to avoid.
Don’t Make These Small Business Insurance Mistakes
No matter how safe you plan on being, it is still important that you have insurance. If you delay getting insurance and something bad happens — you’re on the hook and it’s not good. You can find out more about what might happen.
1. Not Having Insurance At All
44% of small businesses have never had insurance so if you don’t — you’re not alone. Even though you’re not alone, that doesn’t mean it’s a wise decision to go unprotected.
No one wants to think they’re going to be the business that has some catastrophe happen, but it could be your business and your livelihood. You need to put a policy in place to protect yourself.
2. Classifying Independent Contractors as Employees
Whether you’re misclassifying independent contractors as employees or the other way around, it is going to affect your insurance.
If the IRS believes you’re classifying workers, they can audit you. Independent contractors don’t get things like overtime pay and benefits so if the IRS thinks you’ve classified someone who should be an employee as an independent contractor — big trouble.
Big trouble like having to pay overtime pay, benefits and back taxes.
On the other hand, if you’re classifying an independent contractor as an employee, you’re paying money unnecessarily. You’re paying things like workers’ compensation coverage, Medicare and social security taxes when it’s not your responsibility.
While it may be difficult to figure out how to classify your workers, you should know the independent contractors usually have free reign over how they work. They can also work for other people that do the same thing you do, set their own hours and how they work as long as they get things done by their deadlines.
3. Improper Classification Codes for Workers
If you use the wrong classification codes for your workers, it will make a difference in your workers’ compensation insurance premiums. With over 700 of these codes, it is understandable that you might make a mistake.
The reason it makes a big difference is that these codes the injury rate of a certain profession.
The insurance company will consider some professions more dangerous than others and if you’re using a code that is more or less dangerous than the true code, those discrepancies will cost you.
4. Failing to Update Your Insurance
If you don’t update your insurance plan when your business undergoes major changes, you may be paying too much. If your business has less income coming in that could mean a decrease in the amount of money you need to pay for your insurance.
5. Paying for Unneeded Insurance
You may have bought insurance some time back and thought that you needed it but, in fact, you didn’t. The person that sold you the policy might have told you that you needed it when you didn’t.
Most insurance companies won’t purposefully sell your company insurance it doesn’t need but sometimes they don’t know your industry and will accidentally sell you coverage options you don’t need.
Make sure the insurance company that you’re working with knows your industry and what you need.
6. No Risk Management Strategies
If your company isn’t implementing risk management strategies, you may be missing out on serious savings.
Some of the things you can do to decrease the riskiness of ensuring your company is things like security cameras and burglar alarms. These are just a couple of things but make sure to ask the insurance companies what other things could make your insurance rate lower.
7. Buying the Cheapest Policy
If you’re a bargain shopper, you might do a search for the cheapest insurance for your business. While everyone loves a good deal, you need to make sure that you have the proper coverage for your business.
If your business doesn’t have the coverage it needs, you may have a false sense of security and be in for big problems if anything bad happens.
8. Failing to Insure for Liability
You might want to opt out of liability insurance because it will cost more but when you think of the benefits, you can’t leave this one on the table.
Liability insurance will pay for financial damages up to the amount of your policy coverage. It will pay for your court fees and lawyer as well if you get into hot water and need to go to court.
Knowing that your company is covered if you or one of your employees does (or doesn’t) do something that causes harm to someone else. Unless you have enough money to pay for any liability suit out of your pocket, you should make sure to have enough liability insurance to take care of any problems that might arise.
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