Is Cheap Business Insurance Good Enough?

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By getting cheap business insurance, you might be able to save some money. But you carry the risk of being underinsured. Why is this so bad? 

The Danger Of Underinsurance 

Underinsurance occurs when your Business Insurance policy does not offer enough coverage. Insurance policies come with set inclusions and exclusions. 

The inclusions are the risk covered by the policy, while the exclusions are events not covered. 

Cheap business insurance is not good enough when important risks are not included in your policy. Every business has specific requirements, so if the insurance comes cheap but does not cater to your company’s needs, you will be underinsured. 

So, What Is The Consequence Of Underinsurance? 

With underinsurance, you and your business may lose money. When you make a claim, there is a good chance the cost of the claim will be more than the amount payable by the insurance policy. 

This means that you will not receive the full amount for your claim, and you may have to pay the extra cost of the damage out of your pocket. For instance, if you insure your office building for $80,000, but the building burnt down, and the cost of rebuilding it is $100,000. You will have to pay $20,000, which is 20% underinsurance. 

There is also averaging (also called the law of averages). If there’s a provision for averaging in your policy, the insurer can pay less than the amount insured. When averaging, the insurer will reduce your insured amount by the percentage of your underinsurance. The insurer will take away 20% of $80,000 and pay you out $64,000 instead. 

You Won’t Believe The Number Of Underinsured Small Businesses! 

FreshBooks surveyed 1,100 small businesses. This survey revealed that only 60% of these businesses had insurance. Of those with insurance, over 40% said their personal insurance was enough to cover their business. 

This means that about 70% of small businesses in the US are either not insured or underinsured. 

Things To Compare Before Buying Coverage 

Without a doubt, insurance is essential. But you can also overpay for it. To avoid overpaying, compare various items across different insurance companies.

Some of the items to compare are: 

Deductible:  The deductible is an amount you pay before the insurer pays your insurance benefits. If you are paying a higher deductible, your premium will likely be affordable. 

Insurance Coverage:  Assess the coverage the policy offers your business against the cost. If the policies from 2 companies offer you similar coverage, you may opt for the less expensive option. But confirm that the coverage does not leave you at financial risk. 

Company Credibility:  You should also compare the rating of the companies. A-rated insurers usually offer insurance services that are worth the money. 

Policy Limit:  The policy limit is the maximum the insurer will pay you when you make a claim. If this limit is low, your premium will be less expensive. But it may mean lower coverage.

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Don’t Pay For What You Don’t Need 

Never assume that the cheapest Business Insurance policy provides the full coverage you are seeking for your business. However, don’t get caught paying for coverage you don’t need. Speak to your insurance agent about getting the best coverage at the price you can afford. 

For more information visit contractorsliability.com