5 Reasons Your Small Business Needs Insurance

Running your own business is both a challenging and rewarding experience. While the upside of taking control of your earning potential can be great, there are also many outlays and deciding what you spend your limited resources on can be daunting. It can be tempting to put your money toward things that are going to generate revenue versus those that don’t – like insurance!

While it can seem like an unnecessary cost, there are plenty of good reasons to ensure you have adequate insurance cover for your business. We’ve outlined five key reasons below.

1. How Would You Keep Your Business Going if the Worst Was to Happen?

Most people understand the importance of having insurance cover their premises and contents, but typically overlook business continuity. If an event impacted your business, prohibiting you from operating for an extended period, how long could you sustain the business while getting things back in order? This means covering those costs that still keep rolling in even while you are not earning any revenue, such as rent and wages. Unless your business has the cash in the bank to pay those bills, it is important to consider cover for business interruption. Sustaining your business during any down time is fundamental to your ongoing livelihood.

2. Cover May be Mandatory!

In many cases, the choice of which insurance you want to take out for your business and level of cover is up to you, however there are some instances where having a particular type of cover (and level of cover) is mandatory. This often happens when you belong to a specific industry, or it may be a statutory requirement or a requirement of your professional body. Professional Indemnity is compulsory for the following, but not limited to:

• Finance and mortgage brokers;
• Real estate agents;
• Architects and draftsmen;
• Accountants; and
• Bookkeepers and tax agents.

Businesses then typically purchase insurance when setting up and establishing itself. If you are contracting with a business or a government organisation, you may also be asked to provide proof of insurance. For example, handymen are often required to have at least $5 million public liability cover to secure work with real estate agents. Finally, if you are looking to rent a premises, your landlord may require you to hold public liability.

3. Your Personal Insurance Doesn’t Cover Your Business

Something that may not be obvious is that if you work from home, your personal insurance may not cover your business liabilities or property. For example, most home and contents policies do not cover you for bodily injury or property damage to a client or supplier that may occur at your home. While the likelihood of a claim is low, the implications could be costly, and so you should seriously think about public liability insurance. Remember that a low probability drives a lower premium so it need not be expensive – a small price to pay for cover and peace of mind.

4. Not Everything is in Your Control

While you may take every care in your business to minimise or remove any risk, sometimes things are just out of your control. Like the fire that started in the fish shop next door, or the customer who slipped on the drink spilt by another customer or the laptop lost by one of your employees. Having the right cover for your business can provide a safety net for other people’s mistakes.

5. Potential for Lawsuits

Even if you don’t think your business is big enough or even has enough assets to be sued, you still may need business insurance. Why? We live in a litigious society, one incident (or even a perceived incident) and people are immediately calling a lawyer. Having insurance for your business can not only protect your personal assets but also can help protect your reputation, as it can provide the funds to defend you in court.

While this may all sound a bit daunting, it’s better to know the risks your business faces so that you can cover yourself appropriately and run your business knowing that you are prepared financially for any situation.

Up Close: Case Study

A customer tripped while walking through a doorway of a small shop, and sustained a hairline fracture and ligament damage to their left foot. The customer commenced legal proceedings against the business’ owner for the cost of the medical treatment incurred due to the injury as well as the loss of income while she was unable to work her usual job. The seriousness of the customer’s injuries and the fact that she was unable to perform any work were suspicious, so the insurer appointed assessors to conduct an investigation and provide expert opinion reports on the validity of the customer’s claim.

Also, the insurer appointed a law firm to act on the owner’s behalf to obtain copies of receipts for medical treatment and statements from the customer’s work confirming the timeframe she was unable to work and would not be paid for.

The whole process took three months to settle with the customer, and total costs incurred for the assessors and lawyers were $30,000. Compensation for the medical treatment and loss of income was $45,000, all paid for by the public liability policy held by the business owner.

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