Small businesses are a big part of our economy. They create jobs, serve local communities, and bring new ideas to life. But even the best-run businesses can run into trouble. Fires, thefts, accidents, or lawsuits can cause serious problems—especially if the business doesn’t have the right insurance.
Insurance is one of the best ways to protect your business. It can help cover unexpected costs and keep your business running. But many small business owners make mistakes when they buy insurance. These mistakes are easy to make—and they can lead to big financial losses.
In this article, we’ll explain the five most common mistakes small business owners make when buying insurance—and how to avoid them. At Kelstar Insurance, we work with businesses every day to help them stay protected with smart, reliable coverage.
Key Takeaways
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Avoid Buying the Cheapest Policy
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Read the Policy Carefully
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Update Your Coverage as Your Business Grows
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As you add staff, vehicles, equipment, or locations, your insurance needs change.
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Failing to update policies can lead to coverage gaps and denied claims.
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Get Coverage That Fits Your Industry
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Work With an Independent Insurance Agency
Mistake #1: Picking the Cheapest Policy or Not Enough Coverage
Saving money is important—but when it comes to insurance, the cheapest policy isn’t always the best one.
Why This Happens
Business owners often want to spend as little as possible. They might not understand how much coverage they really need. So, they choose the lowest-cost option without looking closely at what it covers.
What Can Go Wrong
Let’s say a clothing store buys a policy with a $100,000 limit to save money. A customer gets seriously hurt after slipping in the store. The lawsuit and medical bills add up to $250,000. The insurance only covers part of it. The business owner is responsible for the remaining $150,000, which could force the store to close.
How to Avoid It
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Think about the biggest risks your business might face.
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Don’t just look at the price—look at what’s included in the coverage.
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Ask an advisor to help you compare policies side by side.
At Kelstar, we help business owners find coverage that fits their real needs—not just the lowest price.
Mistake #2: Not Reading the Details in the Policy
Insurance policies have rules about what they cover and what they don’t. These are called exclusions. If you don’t read these details, you might be surprised when something isn’t covered.
Why This Happens
Insurance language can be confusing. Business owners might assume everything is covered, but that’s often not true. Some events are left out unless you ask for extra coverage.
What Can Go Wrong
Imagine a small café that loses power for two days. All the food in the fridge goes bad. The owner files a claim, expecting the insurance to pay for the loss. But their policy doesn’t cover power outages unless it’s added separately.
How to Avoid It
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Always read your policy carefully, especially the exclusions section.
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Ask your insurance agent to explain anything you don’t understand.
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Find out if you need extra coverage for specific risks—like floods, cyberattacks, or equipment breakdowns.
At Kelstar, we make sure you know exactly what your policy covers—and what it doesn’t.
Mistake #3: Not Updating Your Insurance as Your Business Grows
Businesses grow and change. You might hire more workers, buy more equipment, or move to a larger space. If you don’t update your insurance, your coverage might no longer match your needs.
Why This Happens
Owners are busy and may not think about insurance once it’s in place. They might believe their original policy still works even though their business has changed.
What Can Go Wrong
A delivery business starts with one truck and two drivers. Over time, it adds more trucks and staff. But the owner never updates the policy. When there’s an accident involving one of the new trucks, the insurance won’t cover it—because it wasn’t listed.
How to Avoid It
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Review your insurance every year.
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Tell your agent when your business adds staff, vehicles, or locations.
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Keep good records of your business’s growth and changes.
Kelstar helps businesses stay up to date with coverage that matches their size and operations.
Mistake #4: Ignoring Industry-Specific Insurance Needs
Every type of business is different. A construction company has different risks than a restaurant or a retail shop. Standard insurance plans may not cover the unique risks your business faces.
Why This Happens
Some websites and large providers offer simple, one-size-fits-all policies. These may skip important coverage that some industries really need. If you don’t ask, you might not even know what you’re missing.
What Can Go Wrong
A contractor buys general liability insurance and thinks it covers everything. Later, their tools are stolen from a job site. But the policy doesn’t include inland marine coverage, which protects tools in transit. The contractor has to replace the tools out of pocket.
How to Avoid It
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Talk to an insurance expert who understands your industry.
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Ask if there are special coverages common in your line of work.
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Make sure your policy includes the extras your business needs.
Kelstar has experience with many industries, including construction, transportation, retail, and hospitality. We help you get the right protection for your type of work.
Mistake #5: Buying Insurance from a Limited Provider or Online-Only Platform
Who you buy insurance from matters. Some agents only sell one brand of insurance, and online tools don’t always give you the full picture. That can limit your choices and leave you without help when something goes wrong.
Why This Happens
Online quotes and big-name companies are fast and easy. But they may not explain your options or support you during a claim. You might not realize you had better choices elsewhere.
What Can Go Wrong
A business owner uses an online tool to get the cheapest quote. They buy a policy quickly. Later, they find out it doesn’t include key protections, and there’s no one to help when they need to file a claim.
How to Avoid It
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Use an independent agency that works with many different insurance companies.
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Choose an agent who explains your choices and answers your questions.
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Work with someone who helps you after you buy—not just at the start.
Kelstar is an independent agency with access to over 50 insurance carriers. We give you more choices and ongoing support.
Conclusion
Buying insurance for your business is a big decision. It protects your company from major risks. But if you make mistakes—like picking too little coverage, ignoring the fine print, skipping updates, missing industry-specific policies, or choosing the wrong provider—you could face serious problems.
These mistakes are easy to avoid with the right help. That’s where Kelstar Insurance comes in. We help small businesses get the coverage they need—without confusion or pressure. Our team works with you from the start and keeps supporting you as your business grows.
Need to review your current policy or set up new coverage?
Visit kelstarinsurance.com/contact or call 307-316-8240 to speak with a Kelstar advisor today.
Frequently Asked Questions (FAQs)
Q1: Why is cheap insurance not always a good idea for my small business?
A: Low-cost policies often come with lower coverage limits or exclude important protections. If a claim exceeds your policy’s coverage, your business may have to pay the difference—sometimes costing thousands of dollars more than you saved.
Q2: What are policy exclusions, and why do they matter?
A: Exclusions are specific situations or risks that your insurance policy doesn’t cover. If you're not aware of them, you might expect a claim to be paid when it won’t be. Always ask your insurance agent to explain them clearly.
Q3: How often should I review or update my business insurance?
A: At least once a year—or any time your business changes significantly. This includes hiring more employees, expanding to new locations, buying new equipment, or adding services.
Q4: What kinds of businesses need industry-specific insurance coverage?
A: Almost all. For example, contractors may need tool coverage, restaurants might need liquor liability, and tech firms may need cyber liability insurance. Generic plans often miss these key protections.
Q5: What’s the benefit of using an independent insurance agency like Kelstar?
A: Independent agencies aren’t tied to one insurance company. Kelstar works with over 50 carriers to find you the right coverage, at a competitive price, with the personal service and support you need long-term.
Q6: What should I tell my insurance agent to get the right policy?
A: Be open about your operations—how many people you employ, the value of your equipment, where you operate, and how your business has changed over time. Clear details help match you with the right coverage.
This article has been a collaboration between Kelstar Insurance and OpenAI’s ChatGPT. Created on June 20, 2025, it combines AI-generated draft material with Kelstar Insurance's expert revision and oversight, ensuring accuracy and relevance while addressing any AI limitations.