The first time purchase of business insurance is no less than a milestone for any entrepreneur. It is an indicator of growth, responsibility and willingness to defend your hard work. However, most companies, in particular, startups and small businesses, jump into it without thoroughly considering what they are getting into. The result? Lapsed coverages, rejected claims, or even financial loss when something unforeseen strikes.
The rate of insurance penetration amongst businesses in India remains low. IRDAI reports indicate that only a small percentage of the MSMEs are well covered against property loss, cyberattack, and liability risks. This is because business owners usually commit the same set of errors when purchasing their first policy.
This guide is a breakdown of the ten most common mistakes that businesses make when purchasing their first insurance policy and how they can be avoided.
Read on!
Significance of Getting Business Insurance Right the First Time
Business insurance is not only a legal necessity in certain industries it is your safety net. One event such as a fire, theft, or a lawsuit by a customer may result in huge financial losses. Insurance helps keep your company afloat when such shocks hit you hard.
For instance, a manufacturing company might lose lakhs in damaged equipment in the event that it lacks property insurance. Likewise, a software based business that lacks cyber insurance would incur crippling expenses in case a data breach occurs. Early acquisition of the right insurance coverage can assist businesses to not only secure their assets but also its reputation and future growth.
Let’s now get into certain common mistakes businesses often make when purchasing their first insurance policy-
Mistake 1: Not Ascertaining Your Business Risks Properly
The initial and possibly the most common thing that people do is to dive into insurance without evaluating the actual risks your business faces. All businesses are different – a retail store, a construction company and an IT company will all have entirely different exposures.
Most of the first time buyers think that a simple property policy will suffice. But what about liability from customer injuries, employee accidents, or product defects? Or loss of data in a cyberattack? In the absence of proper risk assessment, you are insuring your business blindfolded.
Prior to purchasing insurance, take the time to identify possible risks-physical, financial, legal, and digital. An insurance advisor or a risk management consultant can assist you in mapping the coverage you actually require.
Mistake 2: Selecting the Cheapest Policy Over the Right One
Budget constraints often push new entrepreneurs toward the lowest-priced policies. It’s tempting — after all, who doesn’t want to save money? But in insurance, cheaper isn’t always better.
A low-premium policy often means limited coverage, high deductibles, or hidden exclusions. When an incident occurs, you might realize the policy doesn’t actually cover your specific situation. For example, a policy may protect your property from fire but exclude electrical short circuits — one of the most common causes of fire damage.
Instead of focusing solely on cost, compare policies based on coverage quality, claim settlement reputation, and add-on options. Paying a slightly higher premium for comprehensive protection can save you millions in the long run.
Mistake 3: Ignoring Policy Exclusions and Terms
One of the biggest traps for new business owners is skipping over the fine print. Insurance documents are full of terms, conditions, and exclusions that define what is — and isn’t — covered.
Exclusions may include things like normal wear and tear, acts of war, deliberate damage, or certain natural disasters. Not understanding these can lead to claim rejections when you least expect them.
For instance, many business interruption policies don’t cover losses from pandemics unless explicitly stated. Always read the policy wording carefully and clarify every clause with your insurer. An experienced advisor can help you interpret the technical language so there are no surprises later.
Mistake 4: Overlooking Key Coverages
Another common blunder is assuming that a single policy covers everything. In reality, businesses often need a combination of different insurance types to be truly protected.
For example:
- A restaurant should consider not just property insurance but also public liability insurance in case customers fall ill from contaminated food.
- A consultant should invest in professional indemnity insurance to cover errors or negligence claims.
- A tech startup must have cyber insurance to safeguard against hacking or data breaches.
Ignoring such important coverages creates risky gaps. Depending on your industry, business interruption insurance, machinery breakdown and employee-related covers are also necessary. Developing a comprehensive insurance portfolio means that no part of the risk is neglected.
Mistake 5: Failing to Disclose Full & Accurate Information
Insurance is governed by a principle called utmost good faith that implies that both parties, the insured and the insurer, are expected to provide complete and full information. The most common mistake made by many first time buyers is not giving the details so as to lower the premiums or just because they believe that it will not make any difference.
As an example, a failure to report the fact that your office is in a flood-prone zone or you use flammable material may result in rejection of claims in future. When an insurer identifies inconsistencies between the stated and factual information, they are at liberty to reject your claim.
Always be transparent when filling your insurance proposal forms. Having a slightly higher premium is a minor cost to pay to ensure that a claim is approved in future.
Mistake 6: Not Reviewing the Insurance Policy on a Regular Basis
Businesses evolve — they grow, upgrade machinery & equipment, recruit more workers or even introduce new product lines. Yet, most business owners do not bother updating their insurance policies accordingly.
Your current operations or the value of your assets may not be reflected in a policy that you purchased two years ago. This leads to underinsurance, in which the amount paid out of your claim does not correspond to the loss incurred. To illustrate, when your factory equipment value goes up and you have a fixed amount of sum insured in your old policy, you will end up bearing the shortfall amount during a claim from your own pocket.
It should be a practice to have your insurance portfolio reviewed at least once in a year or when there are major changes. Periodic reviews ensure that your coverage is in line with your business expansion.
Mistake 7: Ignoring the Fine Print and Renewal Clauses of the Policy
A lot of business owners purchase their insurance and forget about it until the time when they need to make a claim. Unfortunately, a failure to secure essential renewal terms may lead to lack of coverage or high premiums.
As an illustration, certain policies have renewal terms or alterations in terms following a claim. Others might need a new declaration at every renewal step. Also, not paying attention to deductibles (the amount you pay before the insurance covers you) can influence the amount of money you receive in a claim.
It is important to always mark the policy renewal dates on your business calendar and review the updates ( if any) from your insurance provider before renewing. A small oversight here could leave your business uninsured for weeks.
Mistake 8: Buying the Wrong Type of Insurance Policy
Choosing the wrong policy type is another frequent error among new business owners. With so many insurance categories available — property, liability, employee, engineering, and cyber — it’s easy to get confused.
For example, buying only property insurance won’t protect you against lawsuits from customers or employees. Similarly, having liability coverage won’t help if your office burns down. Each policy serves a specific purpose, and selecting the wrong one leaves you vulnerable.
An insurance broker or consultant can assess your operations and suggest the right mix of policies. Whether it’s fire insurance, professional indemnity, or group personal accident cover, the right combination is key to comprehensive protection.
Mistake 9: Not Comparing Insurers and Their Claim Histories
Not all insurance companies are created equal. Some have faster claim processes, while others offer broader coverage options or better customer support. First-time buyers often skip this research and buy from the first insurer they come across — sometimes based on recommendations or advertisements.
Before finalizing your insurer, compare their claim settlement ratios, customer service reviews, and turnaround time. According to IRDAI’s annual report, private insurers in India have an average claim settlement ratio of 85–95%, while public insurers vary between 70–90%.
Choose an insurer known for reliability, transparency, and efficient claim handling. It’s better to work with a company that has a proven track record rather than one offering the lowest premium.
Mistake 10: Managing Insurance Without Professional Guidance
Navigating insurance policies, legal jargon, and multiple coverage options can be overwhelming for a first-time buyer. Many business owners try to handle it themselves to save on broker fees — but this often leads to costly mistakes.
A professional insurance advisor or broker can simplify the process, assess your risks, negotiate better terms, and ensure claim support when needed. Their expertise ensures you don’t overlook vital coverages or misunderstand policy clauses.
Think of it as hiring an accountant or legal advisor — a small investment that brings long-term financial protection.
How to Avoid These Mistakes: Smart Tips for First-Time Buyers
To make sure your first business insurance purchase is a success, follow these simple yet powerful tips:
- Conduct a detailed risk assessment before selecting policies.
- Compare at least three insurers for pricing, coverage, and claim service.
- Disclose all information honestly to avoid claim rejection.
- Review your policy annually and update it with business growth.
- Work with a licensed insurance broker or advisor for professional guidance.
Insurance is not just a formality — it’s an essential part of your business continuity plan. Treat it as an investment, not a cost.
Final Thoughts:
It may seem like a daunting endeavor to purchase your first business insurance , but it doesn’t have to be. With a systematic approach and learning from the common mistakes discussed above, you will be able to make sure that your business is secure against unexpected adversities.
Do not fall into the trap of selecting cheap insurance policies, glossing over details or putting off renewals. Rather, spend some time to get knowledge about your potential risks, find the proper coverages and consult the experts. When applied correctly, business insurance does not only provide you with financial security but peace of mind to concentrate on what is most important; expanding your business without fear.
At BimaKavach, we help you obtain reliable and customizable insurance solutions designed to safeguard your business from unexpected financial setbacks. We will help you obtain comprehensive coverage and absolute peace of mind- so that you can focus more on growth, while these policies handle the risks.
