Insurance mistake #1: Don’t assume you can skip coverage if it’s not legally required
“We’ve seen new owners win a great contract, then learn they do not meet the client’s insurance requirements,” says John Espenschied, an insurance broker with more than 25 years of experience. “That is a rough way to start a Monday.”
About 57% of new owners surveyed in our study cited “not legally required” as a reason they don’t currently have business insurance. Many small business owners check with the state and county to see what’s required to start a small business. They register their business name, apply for permits and request an EIN. They see that business insurance is not a legal requirement, so they don’t buy it.
But state law isn’t the only yardstick to use for making decisions about small business coverage. Often, lenders, landlords and potential clients are the ones who will require proof of insurance (called a certificate of insurance, or COI) to prove you have general liability insurance or other coverages, and you could miss out on important business opportunities if you don’t have a policy in place.
Insurance mistake #2: Don’t put off buying insurance until it’s too late
The first year is when small business owners make insurance choices in a hurry, usually squeezing it in between a hundred other priorities: 84% of small business owners say they prioritized other costs over insurance in the past six months, according to our study. But deferring coverage leaves your business unprotected exactly when cash is tightest.
“The biggest mistake is thinking, ‘I’m small, so my risk is small,’” Espenschied says. “A one-person business can still face a very expensive claim.”
If, for example, you own a landscaping business, you may think you don’t need insurance because you could replace your tools if you needed to. But what happens if:
- You injure someone driving your work truck and they need serious medical care.
- Someone passing by a property you’re working on gets hurt by flying debris and they file a lawsuit against your business.
- You accidentally damage your client’s property, like breaking an expensive bay window, and you’re asked to cover the costs.**
You could face steep bills if you’re found responsible for injuries and property damage, not to mention the price of legal assistance.
Without the right commercial auto insurance, general liability, or BOP insurance, those costs come out of your own pocket. If you haven’t been in business long, you may not be able to cover them. It’s better to have insurance than regret not having it later.
Insurance mistake #3: Only buy the coverage you actually need
Half of new business owners in our study said they wish they’d understood their coverage needs sooner, and 23% called the effort “too confusing.”
That’s understandable; small business insurance needs vary widely from one type of business to another.
“It just depends on what type of business, because they all have different needs,” Espenschied says.
For instance, a solo marketing consultant may require general liability insurance and professional liability coverage. But a construction company with a dozen employees and a fleet of heavy equipment could benefit from those policies plus commercial auto, workers’ compensation insurance and tools and equipment coverage. Their exposure to risk could be greater than an office-based business owner with no employees. Both businesses could benefit from small business insurance, but their needs are very different.
Insurance mistake #4: Don’t take insurance advice from AI without a second opinion
Research is an important step for finding the right coverage, and busy new business owners need fast answers. Many use tools like Gemini, ChatGPT and Claude to learn about coverage and understand their insurance needs. In our study, 36% of small businesses said they use AI to explore business insurance options.
Many entrepreneurs also use AI to research legal or policy concerns, according to a report about AI adoption among small businesses published by the Federal Reserve Bank of San Francisco.
AI research is a good start. But the mistake is trusting your legal and financial protection to artificial intelligence. AI lacks real-time knowledge of current risks and regulations affecting your business. It could even invent policies or coverages that don’t exist.
For instance, you might buy a commercial property insurance policy for your ice cream shop based on AI’s recommendations. But if AI didn’t mention that you need an equipment breakdown endorsement for coverage on a freezer failure, you could be at risk.
To make sure your coverage is accurate, look beyond AI. “If you’re in a business association for ice cream shop owners, you might want to ask them,” Espenschied says. “Because they’re very familiar with the risks that are involved: Food spoilage, delivery, workers’ compensation, slip-and-fall — all these different things that can occur in that type of a business.”
Do your own research, connect with an industry group, or speak to an insurance agent or broker.
Insurance mistake #5: Don’t underestimate your cybersecurity risk — no matter what business you’re in
A boutique owner may not think of themselves as a potential cybercrime victim, but hackers might. Nearly half of cyber attacks in 2026 were against small businesses, according to tech security firm Total Assure. Small businesses provide high-value targets to cyber criminals, with the average breach resulting in $254,000 in losses.
Why are they so often the target? Small businesses are less likely to have adequate security protection. And owners may not have considered the possibility of a data breach — or their liability if one occurs.
In addition to training employees in security, change your passwords frequently and use multi-factor authentication. Be on the lookout for phishing scams and wire fraud; scrutinize every email or phone call from anyone requesting payment. Small businesses can also protect themselves from cyber risk with cyber liability insurance. This type of business insurance could help cover costs related to the breach, such as lost business income or legal defense fees.
Insurance mistake #6: Professional mistakes could get coverage, too
To err is human, but some professional errors can have serious consequences, including costing a client money. Many small business owners assume a general liability insurance policy will cover them if they make a professional mistake, but that’s not usually the case. In fact, many general liability policies actually have explicit professional services exclusions. Errors and omissions insurance, or E&O (also called professional liability insurance in many professions) could help protect you if a client claims that your advice, service, or work caused them a financial loss.
Service-based professionals like insurance agents, real estate agents, consultants and property managers often benefit most from this protection. It could help cover costs if you’re sued for things like professional negligence or misrepresentation. Even if you didn’t make a mistake and only face the accusation, E&O insurance could help with legal costs if you have to defend yourself in court.
“The first time someone gets sued and it costs them $20,000 to hire a lawyer, they go, ‘Oh, I wish I would have had that coverage,’” Espenschied says.
Insurance mistake #7: Don’t skip the annual policy review
The coverage you buy at the beginning of your entrepreneurship journey may not be adequate 12 months later. Regularly reviewing your coverage is important to make sure you’re still adequately protected.
While it’s a good idea to review your coverage at renewal time, don’t wait if your business needs have changed. “Insurance should grow with the business, not chase it,” Espenschied says.
Review your small business insurance coverage at least once a year and at every business milestone to make sure your policies match your risk. Your coverage needs may change:
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- When you hire your first employee: In some states, you’re required to carry workers’ compensation insurance immediately after your first hire — even if they’re part-time or seasonal employees. This type of policy could cover things like medical expenses and legal bills if an employee is hurt on the job.
- When you lease or buy your business building: Commercial property insurance could cover damages to your shop, store, office, warehouse, workshop or other commercial space as well as its contents (known as your business personal property), and landlords often require it to sign a lease.
- When you win a big client: Make sure your coverage matches your client’s requirements. More business can mean more revenue, and you may need to increase your insurance coverage limits across policies.
- When you lease or buy a business vehicle: Commercial auto insurance could cover business use of a vehicle. If your business buys a car, truck, van or trailer — or if you or your employees are driving personal vehicles for business — you may need to update your policy accordingly.
| Common business insurance mistakes | Quick fix |
|---|
| 1. Assuming insurance isn’t required | Check what your contracts require, not just your state |
| 2. Putting off insurance until it’s too late | Budget for coverage before you need it |
| 3. Not understanding what they need | Research insurance needs for your business type, industry and size |
| 4. Taking advice from AI without a second opinion | Confirm AI recommendations with other (human) sources |
| 5. Underestimating cyber risk | Get cyber liability coverage if you handle customer data or payments |
| 6. Hoping they never make professional mistakes | Add professional liability/E&O coverage, especially for service-based professionals |
| 7. Skipping the periodic policy review | Review at renewal and with every major milestone |
