BLOG HOME | Do You Really Need Insurance?
Do you really need insurance?
Insurance is a large cost to you and your business which doesn’t show any value… until you need to make a claim. It is one of those begrudging expenses in life that we HATE paying. So, do you really need insurance or can your business operate without it? If you need it, what type of insurance do you need?
In short, yes you do need insurance not just for your business, but for your personal life too. If you own a car which is not a bomb, would you drive around uninsured & risk running into someone or something causing damage? Not likely. It is the same principle with insurance for your business. If you trade without it, you are running the risk of having to pay out of pocket for any litigation or expenses as a result of a claim against you or your business.
But this will never happen to me!
According to the Australian Prudential Regulation Authority (APRA), statistics from last quarter ending December 2015 show that in Australia, the amount of gross incurred claims by businesses were:
- $382 million for public & product liability,
- $323 million for professional Indemnity,
- $361 million for commercial motor vehicle, and
- $1,135 million for fire and ISR.
That totals $2,201 million worth of claims. The same statistics show that gross earned premiums for these insurance policies for the same period totalled $2,361 million.
If insurance wasn’t necessary, then businesses wouldn’t be making claims and insurance companies wouldn’t be paying out thousands of millions per quarter in policies.
This blog was written as a guide to inform you of the types of insurances available (and is not exhaustive is the types of cover available) and shouldn’t be relied upon as legal or insurance advice specific to your business. You should seek the advice of an insurance broker before taking out any of the policies mentioned in this blog.
What type of insurance do I need?
There are so many types of insurance on the market and it can become difficult to know what policies you need for your business. Below is a list of policies which every business should have and a few additional policies for good measure.
1. Public Liability Insurance
If your business sells, supplies, delivers goods or services to people, then this policy will cover your business if any of your goods or services causes another business or person damage, injury or death. If you have a home-based business or work as a consultant from home, you are still required to have this insurance.
Why? Because if a client comes to your home and trips on a step or chord or slips over, then your home insurance will not cover the claim because the property was being used for a commercial purpose. If you go out to meet with clients at a café, office or the client’s home and you spill a cup of coffee on someone’s laptop or cause an accident on the way in your vehicle or you cause an accident to occur during the meeting, then public liability insurance will cover the damage caused.
If you are importing goods and you either design the goods, change the packaging or are commissioning the manufacturing of the goods, you are required to have Public Liability insurance because within this cover is product liability insurance. If for example, the towel you sold causes a fire because it was not fire compliant, then this insurance will cover your business and its product.
Finally, if you intend on hiring a stand at a trade show or a market stall or open a shop front, then you will be required to provide a copy of your Public Liability Insurance to the Landlords or event organisers prior to taking possession of your stall or shop.
The cost of PL depends on the risk associated with your business and its activities. Most insurance companies offer price beats so shop around to save you some money.
2. Professional Indemnity
Do you offer advice as part of your business? Professional Indemnity Insurance provides cover from potential threats, such as claims for alleged negligence or breach of duty arising from an act, error or omission in the performance of professional services. A Professional Indemnity policy will provide comprehensive protection for your assets against claims for financial loss, injury or damage arising from an act, error or omission in the performance of professional services.
The cost of this cover will depend on the type of advice your business offers. Lawyers and Accountants policy will be much more expensive than a policy for a business which offers minimum advice on marketing (for example).
3. Cyber Insurance
Every business today uses some form of IT, whether it be email, website or customer relations management database (CRM). Whilst Antivirus is available to assist with the prevention of viruses and computer hackers, they don’t prevent it and what would you do if you were locked out of your email account and it took you a minimum of 21 days to regain control? During that time, you had to create a new email account spend time and money obtaining your email database contacts, you would lose valuable and sensitive information which was contained on the emails within the account that was hacked.
What about if your computer was hacked by a virus which took control of your computer software, files, and systems and held it to ransom? This actually happens! It occurred to a business I worked for last year and we lost all of our files due to the corruption.
Cyber Insurance covers your business from these types of attacks and covers the cost of PR and damage to the businesses reputation, forensic investigations to find the source of the hack, cost to contact those who may be at risk of receiving the virus on their computers or receiving correspondence from your email account and it also covers the cost of any claims made against you as a result of the virus or hack. This type of cover is relatively new, however, most large insurance companies offer the premium and again, you can find price beat guarantees if you shop around.
4. Business Contents Insurance
Most people don’t realise that your home contents insurance won’t cover any business stock or furniture kept in your home.
General household contents are usually severally under insured with most insurance premiums being for $40k for a standard home. Think about how much it would cost to replace everything in your home with brand new items. That includes brand new clothes, shoes, bedding, linen, makeup, jewellery, furniture, kitchenware, outdoor furniture etc. Then on top of that, if you have floor boards, ducted air conditioning etc. in your home, they are classed as a contents and not part of the building. It all adds up VERY quickly. While you are reviewing your home contents insurance, you should obtain a separate quote for any business stock or equipment / furniture you store in your home. This is especially important to ensure you are protected in the event of a fire or burglary.
The cost of this premium will largely depend on the security measures you have in your office or home. Do you have a fence that goes all the way around the property? Do your doors have deadlocks and do your windows have bars? These are typical questions that you will be asked by the insurance company. Some insurance companies offer price beat guarantees so shop around to save you some money.
5. Work Cover Insurance
Workers Compensation is an insurance policy that’s compulsory if you employ Queensland workers. If one of your employees are injured or becomes sick in the course of their work, this policy will help cover any medical expenses, rehabilitation costs and loss of earnings as set out in workers' compensation legislation. This helps injured workers recover and get back to work and minimises the human and financial impacts of workplace injuries.
If you're a sole trader/proprietor, or member of a partnership, you're not a worker of your own business and cannot take out workers compensation insurance to cover yourself for injuries. A suitable alternative for you may be a personal accident and illness policy, or an income protection insurance policy however, it's not a legal requirement for you to take out one of these policies. Insurance policies for a company cover all workers of the company, including working directors as the policy is held in the company's name.
One of the most popular workers compensation insurers is WorkCover Queensland, however, other large insurance companies offer assistance with this policy also.
Some other insurance policies which should be considered are:
- Fire and General Business Insurance
- Business Interruption Insurance
- Glass cover Insurance for replacement value
- Directors and Officers Insurance
- Life Insurance
- Funeral Cover Insurance
- Vehicle Insurance
- Income Protection Insurance
When considering the above policies, ensure you have enough cover to protect yourself and your business adequately. Any life insurance policies should include enough money to cover operational costs for up to a year while your estate is being administered. Income protection should also be enough cover to enable your family to live the same lifestyle in the worst possible scenario. It's a very difficult and stressful period in your life and your business partner, family and stakeholders lives when the unexpected occurs.
Some insurance companies offer price beat guarantees so shop around before you purchase a policy to save your business money. If you would like more information about insurance for your business or a referral for our preferred insurance companies, please email firstname.lastname@example.org.
FEB 19, 2016