Common Insurance Myths That Put Small Businesses at Risk
Running a small business comes with enough challenges and insurance shouldn’t be one of them. Unfortunately, many small business owners make decisions based on misunderstandings about how business insurance actually works. These misconceptions can leave businesses underinsured, overpaying, or exposed to serious financial risk.
Let’s break down the most common insurance myths small businesses believe, and the truth behind them.
Misconception #1: “My Business Is Too Small to Need Insurance”
Many owners assume insurance is only necessary for large companies with employees, offices, or high revenue. In reality, small businesses are often more vulnerable because they don’t have large cash reserves to absorb unexpected losses.
A single lawsuit, accident, or property loss could financially cripple a small business, even a home-based or side-hustle operation.
The truth: If you interact with customers, clients, vendors, or the public in any way, you likely need insurance.
Misconception #2: “General Liability Covers Everything”
General liability insurance is essential, but it’s not a catch-all policy. It typically covers bodily injury, property damage, and advertising injury but not everything a business faces.
What it usually does NOT cover:
- Professional mistakes or negligence
- Employee injuries
- Cyberattacks or data breaches
- Damage to your own equipment or property
The truth: Most businesses need multiple coverages tailored to their risks, not just one policy.
Misconception #3: “If I Have an LLC, I Don’t Need Insurance”
Forming an LLC or corporation helps protect your personal assets, but it does not replace insurance.
Legal structures protect against certain liabilities, but they don’t prevent:
- Lawsuits
- Legal defense costs
- Claims against your business assets
The truth: Insurance and business entities work together, one doesn’t eliminate the need for the other.
Misconception #4: “Insurance Is Too Expensive for My Budget”
Cost is one of the biggest reasons small businesses delay getting insured. However, many owners are surprised to learn that basic coverage is often far more affordable than expected.
In many cases, the cost of insurance is significantly less than the cost of one uncovered claim.
The truth: Insurance is an investment in protecting your income, reputation, and future, not just an expense.
Misconception #5: “Home Insurance Covers My Business”
Homeowners or renters insurance offers very limited, if any, coverage for business activities. Even when some coverage exists, it’s usually capped at low limits and excludes liability related to business operations.
The truth: If you run a business from home, you likely need a separate business policy or endorsement to avoid coverage gaps.
Misconception #6: “I’ll Get Insurance When My Business Grows”
Waiting until your business is “big enough” to get insurance is risky. Accidents, claims, and lawsuits can happen at any stage, especially during early growth when resources are limited.
The truth: The earlier you insure your business, the better protected you are during growth and transition periods.
Misconception #7: “All Insurance Policies Are Basically the Same”
Not all policies are created equal. Coverage limits, exclusions, endorsements, and claims handling can vary widely, even between similar policies.
The truth: The cheapest policy isn’t always the best. The right policy is one that fits your specific industry, operations, and risks.
Final Thoughts
Insurance doesn’t have to be confusing or overwhelming, but misunderstanding it can be costly. By clearing up these common misconceptions, small business owners can make informed decisions that protect what they’ve worked so hard to build.
If you’re unsure what coverage your business truly needs, speaking with an insurance professional such as Feliciano Jiron Insurance Agency can help you avoid gaps, overpaying, and unnecessary risk. Give us a call today at 702-522-0079 to get a quote on your business!