Types of Business Insurance – Demystified

 

Few of us would say we love the subject of insurance or would rush out to see a Hollywood movie entitled “Insurance Cover Provisions-II”!

Humour apart, while it isn’t important to like insurance, it IS critically important to understand those elements of it that one day might be all that stand between you and potential bankruptcy.

One strand of such cover is referred to generically as “business insurance”.  Let’s examine that here.

Some business insurance is a legal requirement

Two forms of cover that are regularly discussed under the heading of “business insurance” are:

The former of these covers any costs that might be awarded against you should you be held accountable for an accident or injury suffered by one of your employees (that might include casual or temporary personnel).  This cover is, in almost all circumstances, a legal requirement.

The latter is the minimum amount of cover legally required for a business motor vehicle (or any other type) on the road.

Fail to put either of these into place in qualifying circumstances and you may face very heavy fines.

Business insurance as good practice

Business management studies usually stress the need for businesses to identify and manage-out (act to prevent or mitigate) business risks.

Some risks to your business cannot be entirely eliminated because the circumstances aren’t under your control. Those risks might include:

  • natural perils such as storms, fires and floods;
  • burglary / vandalism / theft;
  • accidents involving you or your colleagues;
  • members of the public suing you for accidents they had on your premises (even if you don’t think it was your fault);
  • a customer suing you for injury they sustained (or damage to their property) as a result of a service you provided or product you made and sold;
  • your contractual liability for work you were unable to complete due to circumstances beyond your control (e.g. flooding on site);
  • the theft or loss of tools and machinery; etc.

Since no-one can guarantee to prevent such things, all the responsible business owner can do is plan to mitigate the financial impacts should the worst happen. That, in a nutshell, is what business insurance is.

It is you providing a financial support mechanism that might enable your business to continue after a major problem.

What it entails

The specific cover terminology for such protection just describes some of the very basic and common sense concepts touched on above:

  • employers’ liability;
  • business buildings, contents and fixtures;
  • stock (e.g. spoliation or destruction);
  • burglary and theft;
  • business vehicles;
  • public liability;
  • product or professional liability;
  • tools and machinery;
  • contracted works.

Not all businesses will need all elements of this cover. There is, after all, little point in paying for cover that’s inapplicable in your situation. An experienced provider of business insurance will typically be able to offer further advice once they know the exact nature of your business.

Do you need it?

Ultimately, with the exception of vehicle cover and employers’ liability, only you can make the decision as to whether to purchase cover or not.

Ultimately, it might be prudent to question just how you would cope without insurance if:

  • a court awarded £20,000 in damages plus legal costs to someone injured on your premises;
  • your stock was entirely destroyed in a flood;
  • your machinery and IT equipment was stolen following a burglary.

If your answer is “not sure” or “couldn’t” then getting further advice on business insurance might be highly advisable.


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