5 Common Mistakes Businesses Make When Buying Insurance (And How to Avoid Them)

Whether you’re a business owner, CEO, CFO, or Controller— you have a lot on your plate and are constantly juggling multiple responsibilities and competing priorities. Given everything it takes to run a business it’s no surprise that many businesses inadvertently make mistakes when buying insurance. Unfortunately, these mistakes can leave companies underprotected or overpaying, with serious financial consequences down the line. In this post, we highlight five common mistakes businesses make when purchasing insurance and explain the real-world risks of each, along with how ALIGNED Insurance helps companies avoid these pitfalls. By understanding and addressing these frequent errors, you can make more informed decisions and ensure your business is protected by the right coverage.

Mistake 1: Failing to Adequately Assess and Prioritize Risks

Explanation: Every business has unique risks, but too often leadership fails to fully assess and prioritize them. A company’s insurance needs depend on factors like its industry, size, assets, services, and operating locations. If you don’t take the time to identify and prioritize all potential exposures, you might overlook critical insurance coverages. For example, almost all businesses need commercial general liability (CGL) insurance to protect against third-party injury or property damage claims. Many also require commercial property insurance (to cover physical assets) and business interruption coverage (to cover lost income if operations are disrupted). Depending on your operations, you may need professional liability (errors & omissions or E&O) if you provide services, directors and officers (D&O) liability insurance to protect executives, employment practices liability (EPL) to cover HR-related claims, and cyber insurance to guard against data breaches. Each of these addresses a different risk. Failing to identify and prioritize which risks apply to your business can result in gaps in coverage that expose you to huge losses.

Real-world implications: If you miss, underestimate, incorrectly your prioritize your risks, you might go uninsured for a major claim. For instance, a company that doesn’t recognize its dependentcy on their IT infrastructure to operate might skip cyber insurance—only to suffer a costly data breach or ransomware attack that isn’t covered. Likewise, an organization without EPLI could face a discrimination lawsuit or wrongful dismissal claim and have no insurance to help with legal fees or settlements. Unidentified risks become costly surprises. In the real world, this mistake can mean paying out-of-pocket for losses that the right insurance policy would have covered. It can even threaten the survival of the business if a major uninsured loss hits. Essentially, failing to assess risks leaves your business unnecessarily vulnerable to events that can derail operations or finances.

How ALIGNED Insurance Protects Your Business with Audit. Optimize. Execute.

At ALIGNED Insurance, we go beyond traditional insurance transactions. Our proprietary Audit. Optimize. Execute. approach ensures your coverage evolves with your business—whether you’re onboarding as a new client or renewing an existing policy.

1. Audit – Our commercial insurance experts conduct a deep-dive risk assessment, analyzing your operations, contracts, and industry-specific exposures. We uncover hidden risks that could impact your business.
2. Optimize – We prioritize risks based on severity and likelihood, then tailor a strategic insurance portfolio that aligns with your unique risk profile—eliminating coverage gaps and enhancing protection.
3. Execute – With insights in hand, we implement your customized insurance program efficiently and proactively manage renewals to ensure your coverage keeps pace with your evolving needs.

By partnering with ALIGNED as your broker, you gain a dedicated risk management ally committed to safeguarding your business and delivering peace of mind.

Mistake 2: Underinsuring or Over-Insuring the Business

Explanation: Even when businesses purchase the correct types of insurance, they often struggle with choosing the proper coverage limits. Underinsuring means your policy limits are too low to fully cover a loss, while over-insuring means you carry higher limits (and pay higher premiums) than necessary. Both are costly mistakes. If you underinsure, a major disaster or lawsuit could exceed your policy limits—leaving your company to cover the shortfall. If you over-insure, you’re wasting money on premiums for coverage levels you’d likely never exhaust. Determining the “right” amount of coverage requires careful analysis of factors like your industry risks, asset values, revenue, and typical claim sizes in your sector. There are even industry benchmarks and guidelines for certain coverages (for example, recommended liability limits for companies of a given size) that can serve as a reference. The goal is to strike a balance where your coverage limits match your actual risk exposure.

Real-world implications: The dangers of underinsuring are clear: you won’t be made whole after a large loss. For example, underinsuring your commercial property might mean only getting a partial payout after a fire, forcing your business to cover the rest of rebuilding costs. Underinsuring liability coverage could mean a lawsuit’s damages go beyond your insurance payout, potentially bankrupting the company. Over-insuring, on the other hand, drains resources. If you’re consistently paying premiums for, say, a $10 million liability policy when realistically a $5 million limit would suffice, that extra premium could have been invested back into the business. Studies show that the majority of small businesses are underinsured – for instance, a Hiscox report found 77% of small businesses lacked adequate coverage – highlighting how common it is to underestimate needed coverage. Both under- and over-insuring reflect a misalignment between your coverage and your true needs, either leaving you at risk or unnecessarily straining your budget.

How ALIGNED Insurance helps: ALIGNED Insurance brokers specialize in right-sizing coverage for your business. We start by learning about your financials, assets, and risk tolerance. Our team uses industry knowledge and data to analyze the appropriate coverage amounts based on your specific circumstances. For example, we’ll evaluate the replacement value of your property, the scale of your operations, and liability trends in your industry. With this information, ALIGNED ensures you carry sufficient limits to fully protect you in worst-case scenarios without paying for unneeded excess. We’ll advise if certain risks can be safely self-insured (handled with company reserves) versus those that truly require higher coverage. The result is a tailored insurance program that avoids the pitfalls of too little or too much insurance. By neither underinsuring nor over-insuring, you get cost-effective protection – adequate when you need it, and efficient when you don’t. This balance can save your business from financial disaster and save money on premiums over time.

Mistake 3: Choosing Coverage Based Solely on Price

Explanation: Cost is always a consideration in business, but buying insurance simply because it’s the cheapest option is a recipe for trouble. Insurance policies are not commodities that are identical except for price. A cut-rate policy often comes with important differences in coverage: higher deductibles, lower limits, or critical exclusions and/or warranties that a slightly pricier policy might not have. If you focus only on the premium, you might skip over the fine details that determine how well you’re actually covered. For instance, a bargain general liability policy might exclude certain types of injuries or have strict sub-limits; a cheap property policy might not cover theft or water damage. Additionally, insurance providers offering rock-bottom prices may not provide the best customer service or claims support. In short, not all policies are equal. You must compare what coverage you’re getting for the price, not just the price itself.

Real-world implications: Businesses that choose insurance based only on the lowest quote often discover the hidden costs later. The real test of insurance is during a claim. A policy that saved you a few hundred dollars in premium could cost you tens of thousands more during a claim if it has exclusions or high out-of-pocket costs. For example, if a loss occurs and you learn that your bargain policy doesn’t cover debris removal or has a very high deductible, the savings are quickly wiped out. Another risk is poor service: some low-cost insurers might handle claims slowly or deny valid claims more often, leaving your business in limbo at a critical time. In essence, penny-pinching on insurance can leave you inadequately protected when it matters most. The price tag up front should never be the only factor—value and reliability of coverage are key.

How ALIGNED Insurance helps: ALIGNED Insurance focuses on value, not just price. When we work with clients, we certainly help find cost-effective solutions, but we make sure you’re comparing “apples to apples” for coverage options. Our brokers will break down the differences between policies and insurers, so you understand what you’re getting for the premium. We flag any exclusions or limitations in a lower-priced policy that could leave you exposed, and we’ll explain the trade-offs. If a certain coverage is critical for your business (for example, coverage for sewer backup in a property policy, or a low deductible for cyber insurance), we ensure the policies we recommend include it. Our goal is to secure comprehensive protection at a competitive price. ALIGNED’s experts leverage our relationships with insurers to get favorable terms and will advise when paying a little more upfront could save you exponentially more in a claim scenario. In short, we help you find the right balance between affordability and adequate coverage, so you’re not blindly choosing the cheapest policy and hoping for the best.

Mistake 4: Failing to Read the Fine Print

Explanation: Insurance policies are legal contracts filled with definitions, conditions, and exclusions – the “fine print.” A common mistake is not thoroughly reading or understanding these details. Many business owners assume their policy covers anything vaguely related to the loss, only to be surprised when an event is not covered. Important nuances often hide in the fine print. For example, a commercial property policy might exclude damage from flood or mold (meaning a flood could cause major damage and your insurer wouldn’t pay). General liability policies typically exclude injuries or damage resulting from intentional acts (so if an employee commits an intentional wrongful act, claims might be denied). Professional liability (E&O) policies cover negligence but **exclude fraudulent or intentional misconduct. Additionally, the fine print outlines procedures you must follow when filing a claim – such as prompt notification of the insurer, specific documentation, or timelines. If you don’t adhere to these requirements (say you file too late or don’t use an approved vendor for repairs), your claim could be denied on a technicality. The language is often technical or ambiguous, which can easily lead to misunderstandings by policyholders.

Real-world implications: Failing to read and understand your policy’s fine print can lead to nasty surprises that jeopardize your business’s recovery after an incident. For instance, you might proceed with repairs after property damage, not realizing the policy required insurer approval first—resulting in a denied claim due to a procedural oversight. Or you might assume your business interruption insurance covers pandemic-related closures, only to find a communicable disease exclusion buried in the wording. These examples happen more often than you’d think: businesses end up paying out-of-pocket for losses because of exclusions they were unaware of or rules they accidentally violated. Another implication is a false sense of security—you think you’re covered and thus take on risks that you would have mitigated or insured differently had you known the true coverage scope. Ultimately, not knowing the fine print can nullify the very protection you paid for, leaving your business exposed at the worst possible time.

How ALIGNED Insurance helps: As a commercial insurance broker, ALIGNED Insurance serves as your translator and advocate when it comes to policy fine print. We painstakingly review policy terms and conditions on behalf of our clients, making sure there are no unpleasant surprises. Our experts will explain in plain language what is and isn’t covered in each policy, and highlight any obligations you, as the insured, must fulfill. If there are critical exclusions (like flood, mold, or cyber-attack exclusions), we point them out and can often advise on solutions – for example, adding endorsements or obtaining separate specialized policies (such as a flood insurance rider or cyber policy) to fill the gap. ALIGNED also assists with claims preparation and reporting. If an incident occurs, we guide you through the proper steps to file a claim in compliance with your policy terms, vastly reducing the chance of a claim denial due to a technicality. In essence, we make sure you truly understand your coverage. By not skipping the fine print, and with ALIGNED’s guidance, you can be confident that you know exactly how your insurance will respond when you need it.

Mistake 5: Failing to Review and Update Policies as the Business Evolves

Explanation: Business is dynamic—your insurance should be, too. A major mistake is treating insurance as a set-and-forget purchase. Many companies renew the same policies each year without revisiting coverage in light of changes to the business. However, coverage that was adequate a year or two ago might now be outdated. Perhaps your business has grown (e.g., higher revenue, new locations, more employees, expanded services) – this often means new or larger risks that your old policies don’t fully cover. Conversely, if your business has scaled down or changed focus, you might be over-insured in some areas and under-insured in others. Failing to update policies can also mean missing out on new insurance products or endorsements that address emerging risks (for example, new cyber threats or legal requirements). In short, if your business changes and you don’t adjust your insurance, you could unintentionally create coverage gaps or be paying for coverages that no longer match your risk profile. Insurance is not static; it’s a living contract that needs to adapt to your business.

Real-world implications: The risk here is coverage mismatch: your insurance program no longer aligns with your business’s reality. For instance, imagine you started offering a new service or product line but didn’t inform your insurer – a claim related to that new offering might be denied as it wasn’t contemplated in your original policy. Or suppose your company’s revenue doubled; your liability insurance limits might now be too low to protect your larger operations, or you might outgrow certain small-business policy packages. On the flip side, if you sold off a portion of the business or ceased a certain operation and never removed an associated coverage, you might be wasting premium on insurance you don’t need. Failing to review policies can also mean missing changes in the external environment: for example, new laws or market conditions might call for policy adjustments (such as higher coverage limits for directors & officers insurance given increased litigation). Ultimately, this mistake can lead to uninsured losses, redundant costs, or compliance issues. It’s an avoidable problem that simply requires periodic attention.

How ALIGNED Insurance helps: ALIGNED Insurance takes a proactive approach to keep your coverage in sync with your business. We schedule regular policy reviews (at least annually) with our clients, and also encourage check-ins whenever significant changes occur – like a major growth spurt, a new product launch, a merger/acquisition, or other material developments. During a review, our brokers will reassess your risk profile: Has your risk increased in any area? Are there new threats on the horizon (e.g., a rise in cyber attacks in your industry)? We then recommend adjustments or additional coverages as needed. For a growing business, that might mean increasing coverage limits or adding new policies (such as adding D&O insurance when you take on outside investors). For a changing business, it could mean consolidating or removing coverages that no longer apply, which can save on costs. We also stay up-to-date on insurance market innovations and regulatory changes, ensuring you have access to the latest coverage options and remain in compliance with any new insurance requirements. By partnering with ALIGNED, you essentially have an ongoing insurance audit built into your risk management. This ensures your insurance program evolves with you – so you’re never caught with outdated coverage when a loss occurs. Our philosophy is that your insurance should always align with where your business is today, not where it was years ago.

 Summary of Common Mistakes & How to Fix Them: The table below summarizes the five common mistakes businesses make when buying insurance, the risks they pose, and how ALIGNED Insurance helps mitigate each issue:

Buying business insurance is a complex but critical task. Avoiding these common mistakes can make the difference between a claim that saves your company and one that threatens it. The good news is you don’t have to navigate these decisions alone. ALIGNED Insurance, as a commercial insurance broker and advisor, is dedicated to helping businesses like yours sidestep these pitfalls. By thoroughly assessing risks, calibrating coverage, focusing on value, scrutinizing policy details, and updating your insurance program regularly, ALIGNED ensures that your coverage truly aligns with your business needs. In a world of uncertainties, having the right insurance—and the right partner—gives you the confidence that your business is well protected no matter what lies ahead. Reach out to ALIGNED Insurance for a consultation or policy review, and let our expertise guide you in securing the best protection for your company’s future.