Running a business involves paying close attention to details, which many startups fail to do. Countless companies disappear after the first year because they didn’t take the time to set up the right protections to keep the firm from collapsing overnight. Here’s a look at typical business insurance mistakes that can result in significant losses for a company.
Using Incorrect Classification Codes
One of the most common business insurance mistakes involves companies assigning the wrong classification codes to employees. Since there are over 700 codes, it’s easy for even executives to get confused.
These codes are building blocks to a system that determines workers’ comp insurance premiums. Each code is associated with an injury rate for a given profession. Using the incorrect code, such as classifying all workers under the same code, can lead to overspending on insurance.
Misclassification of Employees Vs. Contractors
The reason you should avoid misclassifying workers, is it can trigger an audit from the IRS. If an error has been going on for years, it can mean going through past years’ taxes and financial data. Large companies can handle such disruptions, but small businesses can become strained by the extra work.
So it’s for your company’s own good to ensure you classify employees appropriately. The main difference between the two classifications is independent contractors usually set their own schedules, while employees follow assigned schedules.
Failing to Update Insurance Plans
Any time your business makes a significant change, such as in the number of employees, you should revisit your commercial insurance policy and make adjustments. For example, while creating new departments and new job roles, ask yourself how they will affect risks.
Moving to a new location can affect rates since insurers track the crime rates of zip codes and raise premiums in high-crime areas. Another way your policy can change, is if you invest in new equipment. For example, it’s possible to get a discount on premiums if you purchase a security system that reduces theft risks.
Also read: 6 Types of Business Insurance Coverage That You Need
Paying for Unnecessary Coverage
It’s possible to pay too much for insurance if you’re not careful at double-checking details. Be aware that some insurance providers will aggressively sell coverage that their customers may not need.
Just ask yourself what the chances are of filing different types of claims. Some small businesses get by with just a general liability plan that covers costs involved with lawsuits and complaints. More complex organizations add extensions to their plans to reflect unique risks.
Lack of Risk Management
Every business needs to develop risk management strategies for overcoming challenges. One of the most reliable forms of risk management is business insurance. It’s simply a matter of selecting the right type of coverage extensions for your business insurance policy.
Guarding against business insurance mistakes should be on your list of operational review items to be checked periodically. Contact us at Chambers & Company Insurance Brokers to learn more about how to protect your firm with the right coverage.