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The small business guide to not screwing up your insurance
Guide to help you avoid the insurance mistakes that cost founders tens of thousands.
Insurance is boring until you need it. Then it's everything.
Most founders make the same mistakes: underinsuring, buying the wrong type of insurance, waiting too long, or not reading their policy until it’s too late, during a claim. This guide helps you avoid those mistakes before they cost you your business.
Mistake 1
"I'll get insurance once I'm making money"
Why this is wrong:
The moment you start operating, meeting clients, storing data, giving advice, you’re exposed to liability. Insurance doesn’t cover incidents that happened before you bought it. If something goes wrong during your first client meeting and you’re not insured, you’re personally liable.
What to do instead:
Get insurance before you start trading. Before the first client meeting, before you store customer data, before you give any advice. Insurance premiums are tax-deductible from Day 1, so treat them as a business setup cost.
Mistake 2
Using personal insurance for business activities
Why this is wrong:
Personal insurance policies specifically exclude business use. The moment your insurer discovers you were using the car for business or working from home, they’ll deny your claim and may cancel your policy. You’re left paying for everything yourself.
What to do instead:
Always separate personal and business insurance. If you use your car for business, get Commercial Motor Insurance. If you work from home, get Business & Office Insurance (or add a business equipment extension to your home contents insurance). Never claim business activities on personal policies.
Mistake 3
Underinsuring to save money
Why this is wrong:
Many client contracts, leases, and industry requirements demand minimum coverage (often $10M or $20M). If you only have $5M, you can’t take the work. Worse, if a major incident happens and damages exceed your cover limit, you’re personally liable for everything above that limit.
What to do instead:
Check what your industry, clients, and landlord actually require. Don’t guess—ask for their insurance requirements before you buy. For most businesses, $10M Public Liability and $1-2M Professional Indemnity is standard. Going cheaper might save $200/year but cost you $100k+ contracts.
Mistake #4
Not reading your policy until you need to claim
Why this is wrong:
Policies have exclusions, conditions, and limits. If you don’t know what’s excluded, you might assume you’re covered when you’re not. Common surprises: cyber policies that exclude ransomware if you don’t have multi-factor authentication, Professional Indemnity that excludes work done before you bought the policy, and Public Liability that excludes certain activities.
What to do instead:
Read your Policy Disclosure Statement (PDS) when you buy it. Focus on three sections: What’s Covered, What’s Excluded, and Your Obligations. If you don’t understand something, ask your broker. It’s better to know now than at claim time.
Mistake 5
Cancelling insurance to cut costs
Why this is wrong:
Professional Indemnity is “claims made” insurance—you need cover in place when a claim is made, not when the work was done. If you cancel and someone sues you 6 months later for work you did while insured, you’re not covered because you don’t have active insurance when the claim arrives.
What to do instead:
If money’s genuinely tight, increase your excess (you pay more per claim) or temporarily reduce coverage limits. Don’t cancel completely. And never cancel Professional Indemnity or Cyber—those risks don’t disappear when you stop paying premiums.
Mistake #6
Not declaring pre-existing issues or circumstances
Why this is wrong:
Non-disclosure voids your entire policy. If the insurer discovers you knew about a potential claim or circumstance and didn’t declare it, they’ll deny all claims—not just the one you didn’t disclose. You could lose coverage entirely.
What to do instead:
Always disclose everything: past complaints, potential claims, known issues, anything that could lead to a claim. Insurers can handle risk better than they can handle dishonesty. Disclose and let them price it properly.
Mistake 7
Assuming "Business Insurance" covers everything
Why this is wrong:
There’s no single “business insurance” that covers everything. You need different policies for different risks: Public Liability for physical damage, Professional Indemnity for advice/services, Cyber for data breaches, and Workers Comp for employees. Each policy covers specific risks—none cover everything.
What to do instead:
Understand what each policy actually covers. Most founders need at least 3-4 different policies. Ask your broker to explain what each one does and why you need it. Don’t assume one policy covers all business risks.
Mistake #8
Waiting for someone to ask for insurance
Why this is wrong:
By the time someone asks, you’ve already been operating uninsured for weeks or months. You’ve already met clients, stored data, given advice—all without coverage. If something went wrong before you got insurance, you’re not covered.
What to do instead:
Get insurance before you need to show a Certificate. Treat it as a business setup essential, not a nice-to-have you get when forced.
Mistake 9
Not updating your insurance as you grow
Why this is wrong:
Your risks change as you grow. When you hire your first employee, you need Workers’ Comp (mandatory). When your revenue increases, you need higher coverage limits. When you expand services, you might need new policy types. Old insurance doesn’t automatically cover new risks.
What to do instead:
Review your insurance annually. Big changes trigger immediate reviews: hiring employees, launching new services, reaching revenue milestones, opening a new office, and taking on bigger clients. Update your cover to match your current business, not your business from 2 years ago.
Mistake #10
Choosing the cheapest quote without comparing coverage
Why this is wrong:
Cheap policies often have lower limits, more exclusions, and worse claims processes. You might save $300/year but get a policy that won’t actually pay out when you need it. Insurance is one area where “you get what you pay for” is absolutely true.
What to do instead:
Compare coverage, not just price. Check limits, exclusions, excess amounts, and claims reputation. Ask your broker to explain the difference between the cheap quote and the comprehensive one. Sometimes paying $200 more gets you $1M more coverage.
The insurance mistakes that cost the most
Mistake | Potential Cost | How to Avoid |
|---|---|---|
Operating uninsured | $50k-$500k+ in personal liability | Get insurance before you trade |
Using personal insurance for business | $10k-$50k denied claims | Separate personal and business policies |
Underinsuring | Lost contracts, personal liability above limits | Meet industry standards, don't cheap out |
Not disclosing known issues | Entire policy voided | Disclose everything, let insurer price it |
Cancelling Professional Indemnity | Uninsured for past work | Never cancel, reduce limits if needed |
How to get insurance right from the start
Five simple steps
Step 1: Understand what you actually need
Talk to a broker who knows your industry. Don’t guess.
Step 2: Get quotes that match your real risks
Be honest about what you do, who you work with, and what could go wrong.
Step 3: Read your Policy Disclosure Statement
Focus on coverage, exclusions, and your obligations.
Step 4: Get insured before you trade
Not when someone asks, not when you land your first client—before you start.
Step 5: Review annually
Your business changes. Your insurance should change with it.
Ask your broker
- “What am I not covered for with this policy?”
- “What happens if I [specific scenario relevant to your business]?”
- “Do I need any other policies to be fully protected?”
- “What happens if I cancel this policy mid-year?”
- “If I make a claim, what’s the process and how long does it take?”
Good brokers welcome these questions. If they don’t answer clearly, find a better broker.