Running a small business is exciting but comes with legal, financial, and operational risks. One of the smartest ways to protect your investment is with insurance. Yet, too many entrepreneurs make costly mistakes because of common myths and misconceptions about coverage.
Believing these myths can expose you to lawsuits, property damage, employee claims, or unexpected events that could derail your growth. Let’s separate fact from fiction to help you make smarter decisions. Read this article to discover seven insurance myths every small business owner should know.
1) My Landlord’s Insurance Covers My Business
Many entrepreneurs leasing offices or retail spaces think they don’t need their own insurance because the landlord already has insurance for the building. In reality, your landlord’s policy usually only covers the building’s structure, not your inventory, equipment, or liability as a business owner.
You’re responsible for your claims in case a fire damages your store or a customer slips and falls. This is why experts emphasize checking insurance FAQs before signing a lease, so you fully understand what’s covered and what isn’t.
Business owners should always have their own general liability, property insurance, and whatever the landlord provides. A smart approach is to request a copy of your landlord’s policy and review it with your insurance advisor. This way, you can see exactly what protection you already have and where the gaps lie.
2) Small Businesses Don’t Face Big Risks
Many small business owners believe that only large corporations need robust insurance coverage. Smaller companies are often more vulnerable because they don’t have deep financial reserves to handle lawsuits, accidents, or natural disasters.
Consider a local café: a severe customer allergy claim or an equipment-damaging kitchen fire can cost more than a year’s profits. For a small business, that might mean shutting doors permanently. Insurance is a financial shield, giving you the resources to recover without draining savings or closing shop.
Even digital-first entrepreneurs aren’t exempt. Freelancers, consultants, and solopreneurs may not face the same physical risks, but they can still be sued for professional mistakes, miscommunication, or breach of contract. No business is too small to need protection.
3) General Liability Insurance Covers Everything
General liability insurance is essential; it protects against claims like customer injuries or property damage, but it doesn’t cover every risk. Things like professional mistakes, cyberattacks, or employee disputes usually aren’t included.
If you provide professional services, you’ll need professional liability, like errors and omissions. If you store customer data, cyber liability insurance is necessary. And you’ll likely need workers’ compensation if you employ staff.
Treat general liability as the foundation of your coverage, but don’t assume it’s the entire structure. Think of insurance as a toolkit rather than a single tool. Each policy addresses a different type of risk, and having the right mix ensures you’re prepared for multiple scenarios.
4) Home-based Businesses are Covered By Homeowner’s Insurance
With more entrepreneurs working from home, this myth is increasingly dangerous. While homeowner’s insurance protects personal property, it usually excludes anything related to business activities.
That means your claim could be denied if your business laptop is stolen or a client slips while visiting your home office. A home-based business endorsement or a separate business policy ensures your work assets and operations are protected. Without it, you’re running a business on risky ground.
The rise of e-commerce and remote work means more entrepreneurs than ever are relying on home setups. However, don’t confuse personal protection with business protection. Insurers often treat business-related claims separately, and you may not even realize you’re uninsured until it’s too late.
5) Business Insurance Is Too Expensive for Startups
Many new business owners skip insurance because they assume it’s unaffordable. The reality is that policies can be tailored to fit your budget and business size. Coverage doesn’t have to be all-or-nothing; you can begin with a basic policy and expand as you grow.
In fact, going without insurance could cost far more. A modest monthly premium is a price for continuity, protecting investments, saving reputational damage, and preventing catastrophic out-of-pocket expenses that could shutter your business.
Another way to save money is bundling. Many providers offer package deals that combine property, liability, and business interruption into one affordable policy. Local insurers often have more flexibility in tailoring coverage to your needs compared to national providers.
6) Only Physical Risks Matter, Digital Businesses Don’t Need Insurance
Online businesses sometimes think they don’t need insurance because they lack a storefront. However, digital businesses face severe risks, and cybercrime, data breaches, and client disputes can be financially devastating.
If hackers steal customer payment information from your site, you could face legal fees, regulatory penalties, and reputational damage. Cyber liability insurance helps cover these expenses and is quickly becoming as essential as property insurance for modern entrepreneurs.
Even service-based businesses, like consultants or marketing agencies, need coverage. A single claim of misrepresentation or breach of contract could result in legal fees that exceed your profits. Digital-first companies can’t ignore risk management.
7) Once I Buy Insurance, I Never Need to Review It
Business owners sometimes treat insurance as a “set it and forget it” purchase. However, your coverage needs to change as your company grows. Adding employees, purchasing new equipment, or offering new services can all affect your risk profile.
Failing to update your policy could leave dangerous gaps. Review your insurance annually, or even semi-annually, and update coverage with an advisor so you’re not underinsured or paying for unnecessary extras.
It’s also wise to revisit coverage after major business milestones: moving locations, expanding into e-commerce, or securing new contracts. Each milestone changes your exposure, and your insurance should evolve with your growth.
Practical Checklist: What Every Small Business Should Do This Month
Inventory your physical and digital assets (include approximate replacement costs).
Gather current policy documents and note coverage limits and exclusions.
Ask your broker about three specific add-ons: commercial auto, cyber liability, and business interruption.
Compare at least two quotes, and consider bundling policies for discounts.
Schedule an annual policy review and document any business changes that may affect coverage.
Keep a copy of policies easily accessible and make sure key staff know what’s covered.
Build insurance costs into your annual financial planning, rather than treating them as an afterthought.
Endnote
Small businesses already juggle attracting customers, managing cash flow, and scaling operations. Don’t let misinformation about insurance add unnecessary risk. You’ll be better equipped to make informed decisions, safeguard operations, and position your company for long-term success by recognizing and debunking these seven myths. Remember, the sooner you align coverage with your real risks, the sooner you can focus on growing your company with confidence.
