As a small-business owner, chances are you’re always on the lookout for ways to trim the fat from your budget. But when it comes to your business insurance, you may not be looking in the right place.
Fear not. Here’s a rundown of the top five costly mistakes small-business owners make when it comes to their coverage and ways to ensure you don’t make them.
1. Using the Wrong Classification Codes for Workers
This mistake affects your Workers’ Compensation Insurance premiums. But before we delve into the issue, let’s first get on the same page about what a classification code is.
Employee classification codes are part of a system used to determine the cost of Workers’ Compensation Insurance. Here are the takeaways:
- There are more than 700 of these codes.
- Each code denotes a specific profession’s injury rates.
As you might have guessed, the logic behind this system is that some professions are more hazardous than others. The higher risk the job is, the more you can expect to pay for coverage for that worker. For example, covering a construction worker is going to cost your business more than covering a secretary. The construction worker simply faces more risk of serious bodily injuries while working.
Now that we have that straightened out, here’s the issue: if you use the same classification code for all your employees, you may be overpaying for your Workers’ Compensation coverage. For instance, if you run a restaurant, you wouldn’t want to classify all your workers as kitchen cooks if you also have clerical staff. The clerical code assigns a lower rate.
You can read more about how to properly classify workers in the post “How Do I Use Workers’ Compensation Class Codes?”
2. Misclassifying Independent Contractors as Employees – Or Vice Versa
Sometimes, the line between independent contractors and employees can get confusing – especially if you rely on the same independent contractor for long-term work. But it’s worth educating yourself because…
- The IRS can audit your business if it suspects you’re misclassifying employees as independent contractors. If you accidentally do make this mistake, you could end up owing back taxes, benefits, and overtime pay.
- If your employee is really an independent contractor, you’re spending unnecessary money. As an employer, you pay part of your employees’ Social Security and Medicare taxes. You’re probably also paying for their Workers’ Compensation coverage, as most state laws require that employers insure their employees with this policy.
There’s no hard-and-fast way to distinguish between the two types of workers. However, independent contractors usually have free rein over the manner in which they complete their work. That means they set their own schedules, except for deadlines. They usually provide their own tools and supplies for the work at hand, and they have the freedom to work for other clients.
Read more about the difference between independent contractors and employees in the post “This Common Mistake Can Cost Small Businesses Thousands.”
3. Not Updating Your Insurance Plans
When your business experiences a major change, it affects all aspects of your business – including its insurance policies. If you don’t update your policies to reflect significant decreases in income, you could be paying too much for coverage you no longer need.
By contrast, if your business takes off and you start making money hand over fist, you may need to adjust your policy limits so you’re not underinsured when something goes awry.
In general, check in with your insurance agent to update your policies if your business…
- Moves to a new location. Your agent will need to update your General Liability Insurance and Property Insurance.
- Hires or fires employees. This impacts your Workers’ Compensation Insurance needs.
- Invests in commercial real estate or expensive new equipment. You might need to update your Property Insurance to reflect these new assets.
- Starts offering new services. This change impacts your Errors & Omissions Insurance. Your agent will need to amend your policy to cover the new service your business provides.
4. Paying for Policies Your Business Doesn't Need
Is there anything more disheartening than spending your hard-earned cash on something useless? At insureon, we’ve seen it happen with far too many of our customers before they started working with us.
It’s not that other insurance agencies are evil. It’s just a matter of them not understanding the nuances and risks that come with different industries.
That’s why it’s always best to work with an agent who…
- Knows your industry. This insider knowledge saves you and your agent both a lot of time. You don’t have to explain the ins and outs of your business because your agent is already familiar with how it operates. That means your agent already knows the risks you face (and the ones you don’t) and can tailor your coverage accordingly.
- Has experience insuring small businesses. Your needs are not going to be in the same ballpark as big-box stores or billion-dollar companies.
- Works with several top-rated insurance providers. That way you can get the most competitive prices on your policies.
For more tips on cutting down your insurance spending, check out our blog series on insurance saving tips.
5. Not Implementing Risk Management Strategies
Did you know that some risk management measures can lower your insurance premiums? Though every insurance provider has its own criteria, many take into account the following preventative strategies when calculating your premiums:
- Having a central station burglar alarm. This deters theft, which impacts your Property Insurance premiums.
- Updating old office buildings. Old buildings are a gamble in the eyes of your insurer. Updating them to current building code may reduce General Liability and Property Insurance premiums.
- Using security cameras. These tend to deter property theft and vandalism.
- Using client contracts. These may prevent unnecessary E&O lawsuits.
Be sure to talk to your insurance agent about the safety measures you can implement that could reduce your insurance rates.