Imagine your business facing an unexpected risk like fire, theft, natural disaster or employee injury, and all that without having Business Insurance coverage. The expenses these circumstances may lead to, can potentially drive you out of business for good. So having a Business Insurance policy is definitely a must for any business no matter how small it is.
The statistic shows that about 40 percent of small businesses aren't insured at all, because their owners assume that having a small Business Insurance policy is too costly for their enterprise. Fact is that not having Business Insurance may lead to expenses far beyond annual premiums, putting you at risk of losing your business. Natural disasters, theft, employee injuries – this all may lead to unexpected financial losses, which could be covered by Business Insurance if you have insurance. There are different Business Insurance packages offered by insurers to small business owners who run short on cash. For example, business owner's policies (BOPs) provide the necessary coverage for property and casualty risks at a low price. Another way of reducing Business Insurance costs is raising your deductible. You'll have to pay more to make a claim but you can be sure you are fully covered when something happens.
Risk management represents a powerful tool of keeping your Business Insurance costs under control. By using risk management you determine all the possible risks your business may face and choose whether you want to finance coverage against these risks or not. Large companies use these methods of reducing their expenditures, and your small business could use the same scheme for making sure you don't over or under-buy insurance.
Your Business Insurance policy will have to be reviewed frequently in order to adjust it to your needs. You want to make sure you're covered for exactly what you need and do not overpay at the same time. That's why you need to review your Business Insurance policies at least one a year and make them relevant to your business' insurance needs. You should also consider reviewing your policy whenever an unexpected situation implying Business Insurance occurs. Loyalty may not be the smartest thing to follow if your insurer's competitors offer more advantages at a lower price. Quote for Business Insurance rates at numerous insurance providers to choose the best offer.
Business structures like incorporation provide protection for the owner's personal assets, but they do not make Business Insurance needs irrelevant. Incorporation could provide some benefits, but still you can be personally liable in case of a lawsuit. Thus, you risk both your business and your personal assets by not having a Business Insurance policy.
If your business has employees, regardless of their number, you should carry workers' compensation coverage. Besides, many states require the companies to have such coverage in order to be registered. Although, the amounts of workers' compensation coverage and mechanisms of regulation vary from state to state.
Running a business is inherently risky. Many factors outside the control of the business owner can influence the success or failure of the enterprise and a high percentage of new businesses fail within a few months of inception. Even large and successful businesses can succumb to changing conditions. Consider what has happened to some of the largest companies in industries such as automobiles, telecommunications, computers, and railroads. To improve the probability of success, the management of a business should think about potential risks and how to offset them.
The losses to a business caused by increased expenses or decreased revenues could threaten the livelihood of the owner or owners. A realistic analysis of the risks inherent in the business and a plan for dealing with them will protect the business from unanticipated losses and disruptions to its flow of income.
Risk analysis is a process by which you consider all possible risks and determine which are the most significant for your particular business. It may make sense to mitigate some risks by purchasing insurance.
The size of the company, type of industry, type of organizational structure, capitalization, geographical area, management team, degree of experience and expertise in the targeted business, capitalization, competitive environment and many other factors can have a bearing on the risk environment for the company. The business owners should address such issues in their business and strategic analyses of the company's situation. A few of the potential operational risks are as follows:
Risk of Property Damage
Risk of Inventory Loss or Damage (through spoilage, etc.)
Risk of Loss from Employee Theft
Risk from Various Liabilities (including injuries to customers or to others)
Risk from Errors and Omissions Liabilities
Business interruption Risks
Other risks involve the business's employees and may call for optional or mandatory insurance coverage:
Some additional risks relate to the owners and their ability to continue the business in the event of serious losses
A review should be done periodically. Once a year might be appropriate for many businesses. Many insurance premiums are up for reevaluation annually. That would be a good time to consider any changes in your risk analysis. You should also consider a review whenever you business:
Gets larger or smaller;
Changes its nature as when it diversifies into new businesses or markets or products;
Anytime your business evolves in any way that could change your risk profile.
A closely held corporation has a small number of shareholders, no public market for the corporate stock and the ownership and management overlap. Many small closely held corporations are functionally not greatly different from small unincorporated businesses in such matters as how they operate, make decisions and raise capital. Despite the difference in liability exposure, some lenders have been known to require managements of small corporations to pledge personal assets to secure business loans.
The term "Business Insurance" refers to a wide variety of insurance coverages that can reduce or mitigate or compensate for exposure to risk for the business or its employees. It also includes coverages mandated by law such as unemployment insurance, workers' compensation social security, and (in some states) state disability.
In today's business world, your computer data constitutes a key asset – perhaps more valuable than many of your tangible items such as buildings or vehicles. So safeguarding data and data processing assets are crucial success factors.
The risk assessment process is the basis for determining what insurance you need. Many insurance companies provide a wide variety of business property and casualty coverages. These can be underwritten individually and tailored to your specific business.
The cost is dependent on the specifics of your business situation. You can probably reduce the cost by shopping around. There are many companies providing business coverages and competing for your business.
Many small to medium size businesses may be able to save money by considering packaged coverage instead of purchasing a lot of individual policies for the different risks.
Property and casualty insurance provides a tool for reducing the individual business's risk by spreading the risks faced by many businesses. Many business owners contribute their premiums to the insurance company that provides the policy, but not all of the insured businesses experience losses so the insurance company is able to use some of the premium income to compensate those who actually sustain losses. In effect, the relatively small amount of money contributed by the many companies that are insured is used to reduce the losses suffered by the companies that actually have losses.
The insurance company has to pay for the cost of the coverages provided to the insured businesses. The predictability of these costs will vary based on the type of coverage. Some losses are immediately apparent (e.g. fires) while others take years to become final (e.g. court judgments for liability coverages). Various expenses, such as getting customers and administrative costs of running the business must also be paid.
Some types of businesses including restaurants (except fast food), financial companies, some types of medical offices and others may be considered high risk for some types of insurance and so may have higher than average cost for those types of insurance. Also, they may not be eligible for lower cost packages of Business Insurance. A history of large or frequent claims can also increase the cost.
A business owner's policy (BOP) is the best choice for many small to medium size businesses if they can qualify and if the limitations and types of coverages fit their needs. Some specific additional policies may be purchased to supplement the BOP coverages if needed.
Property damage includes a number of direct risks as well as some indirect ones. Direct damage would include fire or flooding damage to the building where you do business while indirect damage would include being out of business temporarily because of damage caused by a fire or flood. Whether you lease or rent or own the building where you conduct your business, you will probably need some type of property insurance.
You need to be certain that any property insurance coverage is adequate. Decide whether to base the coverage on replacement value, actual value (replacement less any depreciation), or some other amount you stipulate and deem sufficient.
Basic liability coverages such as provided in business owners' policies may be adequate in many cases, But if you are in a business or profession where there is an especially high risk of lawsuits (some branches of medicine for example) you may need extra protection.
Planning for business owners generally impinges as well on personal financial issues. For most business owners, the business constitutes a significant part of the owner's personal assets. Furthermore, personal financial problems can jeopardize the healthy continuance of the business through creating difficulties in raising capital, getting loans, etc. The analysis and planning issues often involve concepts that relate to business organization, laws, taxes, compensation for the owners and employees and insurance planning.
Suppose you are trying to meet an important deadline for a key customer when a disastrous, unforeseen event takes place putting your ability to complete the job in jeopardy. An example would be when the indispensable person who heads up the project becomes ill or is hospitalized.
The business interests will pass to the designated person as specified in the will (or intestate laws) and have to be reorganized or liquidated. Everyone has probably observed situations where the owner of a small thriving business dies and the business then struggles to continue or is forced to close. The best way to avoid such a situation is to plan ahead and prepare the appropriate legal documents and funding mechanisms to assure that you wishes are carried out.
You know how hard you had to work to achieve business success. You should consider also what plans you have for your own financial future (retirement, etc.) and for the future of your family members. Besides preparing updated Business Insurance and other business plans you should review, with qualified professionals, your personal assets, investments and insurance. This should include reviewing and updating your personal insurance and investment strategies, will, and estate plans.
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*Savings amount based on 2017 research by Kaufman Levin Associates. Risk profile dependant.
Hippo Comparative Services (Pty) Ltd is an authorised financial service provider. FSP number: 16357. 1 Telesure Lane, Riverglen, Dainfern, 2191.