Insurance for your business

Business insurance is vital for any business, but perhaps particularly so for small businesses. Unless you can afford to rebuild your business from the ground up, you need insurance to protect the business from almost any eventuality. While it can be frustrating to be paying for something that may never happen, particularly when you run a small business where every dollar counts, you have to imagine how your business would fare if there was a fire, or the business was sued - would your business survive if you didn't have insurance?

However, with so many types of small business insurance covers available, where do you start?

Different types of businesses are subject to unique types of risk, and therefore require different insurance coverage. However there are so many options available that it can be difficult to know exactly what to cover.

To begin, you need to evaluate your business needs, and understand that your requirements may vary depending on the business you operate and where you operate it. Speak to your insurer or a financial advisor and they will be able to provide some much needed advice so you're not underinsured or end up with insurance you don't need. The good news is most insurance providers will custom design an insurance package to suit the needs of your business, or a specialist small business insurance broker might be able to keep premiums low.

Keep in mind that workers compensation, public liability insurance and compulsory third party car insurance (when using vehicles for business purposes) is compulsory by law in order to protect your employees and customers. Third parties may also require additional insurance cover, for example finance companies, landlords and professional bodies. Additional business insurances are the choice of the business owner.

Types of non-compulsory small business insurance generally fit into three categories.

 

Assets and revenue

A small business' revenue stream and assets are crucial to ensure business continuity. There are three key types of insurance worth investigating to successfully cover your business from loss of assets and/or revenue - property insurance, buy/sell insurance and business expenses insurance.

Property insurance is imperative to cover the cost of repairs or replacement of the tangible assets of the business. Whether it is Mother Nature or human nature, it is important to protect your building, equipment, contents, inventory and business documents from damage and theft. Property insurance covers can include fire & perils, business interruption and burglary. Keep in mind that, in most cases, operating a business from home is not covered by your home and contents insurance and you will need to discuss insurance options with your insurer or broker.

It may be worthwhile protecting the sale price of your business if it is co-owned using buy/sell insurance. If one owner or partner in the business was looking to sell in distressed circumstances (for example death and disablement or in some cases disputes between co-owners) buy/sell insurance would protect the sale price of the business. This type of insurance protects the business' value and ensures all owners get the right entitlements.

If the owner or key income generator is unfit to work, business expenses insurance would cover the fixed costs of a small business. This insurance cover is often linked to personal income protection cover for the business owner. Business expenses insurance guarantees revenue would continue to be generated if the key incomer generator is unable to work. The fixed costs will differ according to policies and insurers can range from advertising costs to rent and bank charges to salaries.

Other policies which may be appropriate to your business include (but are not limited to) fraud, goods in transit, employee dishonesty and machinery breakdown.

Personnel

Without personnel a small business would be unable to operate. Aside from workers compensation, personnel insurance primarily covers the small business owner(s) or key income generator. In this sense, there is an over-lap with revenue insurance policies such as business expenses insurance.

Should a key income generator (which may or may not include the business owner) be unable to work for a prolonged period of time, key-man insurance would provide an immediate capital injection in order to cover to cost of recruiting a person to fill the responsibility of the key income generator. This may include salary and benefits, recruitment fees and training or license fees.

If you own the business in a partnership, partnership insurance would protect the business from 'money grabbing' relatives following the death of a co-owner if part of the business is allocated through a will.

Liability

Although public liability insurance is compulsory, product liability and professional indemnity insurance protects the business from damages resulting from a product or service provided. Product liability covers poor product performance should any defect result in malfunction, covering the business for any damages claimed by the end user. Similarly professional indemnity insurance covers the business should a client claim damages resulting from the provision of a services; it is available to business' providing professional services such as doctors, lawyers, accountants and veterinarians.

See www.business.gov.au for more state specific business insurance information and links to insurance and broker associations.

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