5 Common Mistakes People Make When Buying Business Insurance

There’s a platinum rule that should drive every decision a business owner makes: treat your customer not just like you would want to be treated, but the way they want to be treated. In other words: work to understand what’s important to them. Those who don’t risk angering customers—or worse—losing them altogether.

This dynamic is particularly pronounced in the insurance industry. Agents, large and small, overlook those they serve, issuing blanket policies that don’t truly look out for the best interests of their clients. It’s particularly glaring in franchising, where agents who aren’t familiar with critical industry regulations don’t adequately protect those who need it most.

That’s why Doug Groves founded EZ CERT. With decades of franchise experience under his belt, he quickly recognized that there was a glaring gap in the system that franchisors were using to track franchisee compliance. Now, instead of brands taking on the responsibility of hunting down coverage certificates, EZ CERT serves as an important middle man, utilizing its expert team to maintain relationships between a franchisor and local owners.

Of course, it’s still important for franchisors and franchisees to do their part to help make business insurance work properly for them. Below are five common mistakes Groves sees during that purchase process.

1. Using an Agent Who Isn’t Educated About Your Industry

Just as you should only take legal advice from an attorney or medical advice from a doctor, you should only take insurance advice from someone who truly understands what you need to protect.

“Buying your insurance from someone who knows what you do for a living is important,” said Groves. “It’s simple to say, but it often isn’t followed. I shouldn’t be insuring dynamite manufacturers or farmers because I don’t know their businesses and what risks are involved there. But, I do know franchising and businesses.”

Groves suggests spending time searching out someone who understands the business you’re in. And, don’t be afraid to lean on referrals from others.

“Find people in your segment and ask them who they’re using,” he said. “That can help with setting the right budget and ensuring you have the insurance you really need.”

2. Not Using an Independent Agent

“At EZ CERT/Program Insurance Group, we have the ability to create customized solutions,” said Groves. “When you’re using a bigger, national or even regional insurance agency, you can get pigeonholed into types of coverage you don’t need without the luxury of understanding what options are really out there for you. That doesn’t mean those companies are all bad. Many of them actually have specialties themselves. Independent agents just have the flexibility to do a better job in specific spaces like franchising.”

3. Not Insuring Correctly

You’ve probably heard the adage before from a business owner. Maybe you’ve even said it yourself—that you are far more insured than you need to be. Groves says that in most cases, that’s a false belief.

“People often think that they’re paying too much or that they’re over-insured. But, when you look into the numbers, you should see that it’s about 1 to 2% of your gross sales, typically. That amount isn’t going to break your business. If you go out of business, it’s never going to be because you bought too much insurance. But, not having enough insurance—or having the wrong insurance—very well could break your business.”

Think about your auto insurance, for example. Often, people buy the minimum amount of coverage, thinking that a potential accident will never happen to them. But, accidents happen every day.

“People think liability claims will never happen to them, but they do happen to somebody. Things do go wrong. People slip or get robbed. Building roofs collapse. Employees get into bad car wrecks and people, unfortunately, do get killed. When bad things happen, you need to be prepared for them, and that’s when insurance is a critical thing. Nobody wants to talk to the insurance man until bad things happen. But, by then, it’s too late. That’s why it’s so important to make sure you have the best plan, because you truly never know.”

4. Insuring Items That Aren’t Critical or Even Important to Your Business

Insurance is meant to help in the event of a loss. But, that doesn’t mean everything you own has to be covered.

“People sometimes have lots of assets and they insure against inconsequential loss,” said Groves. “You may not have to have a policy for small things you might lose or a box of office supplies an employee might steal. But, major things that could break your business are important to cover. Look at the deductible amount to save costs there. You want to insure yourself from catastrophic loss, not inconsequential loss. We can’t insure every small thing, but we can and should protect ourselves from a major loss.”

5. Setting Limits that are Too Low

It’s critical to set the right coverage limits for your particular franchise business—and no two are ever the same.

“People buy a commercial automobile policy and they have minimum limits of coverage,” Groves said. “They may think that model should apply to all insurance. But, your car is the biggest liability most people have. We text, talk on the phone, listen to the radio, and, in a split second, can cause or be the victim of a multi-million dollar loss. Not having enough insurance coverage, in terms of limits, on that automobile can become a devastating decision for someone.”

The key question is: how much insurance is enough? For Groves, there is a litmus test that should help make the decision easier.

“Make insurance more attractive than you personally,” he advises. “Add up all of your balances and purchase insurance limits based on that. We want the plaintiff to say: ‘I want to leave you alone—take your insurance and go on.’ When your balance sheet on limits is too low, that’s when you can get into trouble. At the end of the day, they should go after the insurance coverage, not go after you.”