Every so often will be asked by startups and even established companies: “can you get me cheap business insurance?”
At first I’m sort of offended that someone would ask me that, but then I remember that it’s not the customer’s fault for thinking that “cheap is good” – it’s actually the insurance industry’s fault. The insurance industry has been commoditizing insurance so much over the past ten years – especially auto insurance that it’s hard not to think that a priority of any type of insurance is that it has to be cheap. We’ve all been conditioned to think that 15 minutes could save you 15 percent or more – by doing comparison shopping you’re going to save hundreds of dollars.
When you think “cheap” you get “cheap”
– if you solicit brokers asking for quotes and your ultimate priority is getting cheap business insurance, you are asking the broker to forget about quality, getting it right or creating a protection plan that will actually protect you should a loss occur!
Here are some of the Effects that Cheap Business Insurance Creates:
Gaps in coverage – Because you wanted to go cheap, your broker omitted a broadening endorsement which would have added a bunch of extra “add-ons” including employee dishonesty and other crime coverage. When you find that an employee has used your corporate credit card to charge thousands of dollars in personal expenses you ask if it’s covered. Oops, it’s not – but for $150 when you got the policy you could have had the right coverage to cover that $6,000 dishonesty claim.
In another example, in order to save money a broker may offer a policy with actual cash value as a valuation term on business property instead of replacement cost. Should a loss occur you will be paid the depreciated value of your business contents instead of getting “new for old” replacement of the property. In real life the premium difference between actual cash value and replacement cost will depend on the amount of coverage purchased, but it’s truly negligible; but the impact at time of loss is not. Consider a fire destroys a auto body shop and burns up $100,000 worth of tools, inventory and equipment. Under an ACV (actual cash value) policy the body shop owner could get less than 50 cents on the dollar due to depreciation. But, under a replacement cost policy the shop owner gets his property replaced new for old, with no deduction for depreciation.
“Give me the basics” or “I really don’t need anything special”. That’s what you tell the broker who’s willing to write cheap business insurance for you. As a result, he or she writes a business owners policy with only $500,000 liability limit instead of $1,000,000 or even higher. You may not know this, but the premium difference between the two policies may only be fifty bucks a year. If you got sued for $1,000,000 wouldn’t you rather have the full amount of the loss covered instead of just half of it? Especially when you consider that going cheap only saved you $50!
If you’re just starting out and haven’t purchased business insurance before, you may not know everything that you need. So when you start off asking for cheap Insurance or “the cheapest insurance you can give me”, the broker you’re working with may not tell you about important things like workers compensation, which in New York and most other states is required by law. We’ve seen it happen several times with prospects who have worked with other cheap insurance brokers, only to find out that they are out of compliance with workers compensation and incur substantial fines for failure to carry coverage. In New York, the Workers Compensation Board levies a fine of $2,000 for every ten days an employer is out of compliance! If you go for 90 days without coverage that’s a potential fine of $18,000!
The old saying of “you get what you pay for” is certainly true when it comes to business insurance. We’re not saying that good insurance has to be expensive, but we are saying that cutting corners or trying to get something as important as business insurance on the cheap may not be a good idea. Saving a few dollars here or there could end up costing hundreds of thousands of dollars in the long run as we’ve illustrated here.
Our advice: work with a professional insurance broker that is experienced in your type of business, who has shown professional competence by earning credentials, and one that specializes in business insurance. Be honest about what you’re looking for, but say “I’m working on a tight budget – if you can please work your hardest to get me quality coverage at a premium I can afford”. Most professional agents and brokers will go that extra mile for you to make sure you’re getting “a good deal” – which means the right coverage at a competitive premium.
Always be sure to secure your business insurance the right way!