In many of the guides available from this website we have been discussing liability associated with running a business. We have used extreme examples, like losing your house, so you understand worst-case scenarios. The good news is that we can protect ourselves against most of these liabilities and this guide will explain the key insurance types you should consider.
Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.
An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter. A person or entity who buys insurance is known as an insured or as a policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and usually involves something in which the insured has an insurable interest established by ownership, possession, or pre-existing relationship.
WHY do I need Business Insurance?
First consider your personal life. Do you insure your car, home, health, income, or life? Yes, most of you do protect yourself from unexpected expenses in the unlikely event something goes wrong. A business is no different!
WHAT might we need insurance cover for?
In business the sorts of things we would consider protecting include your workers, your personal liability, company assets like buildings, company revenue, and your customer.
HOW do I know which insurance policies I will need?
Some insurance is compulsory and includes Public liability, Third-party Personal Injury (if you own a car), and Worker’s Compensation (if you have workers).
Public Liability Insurance
Public liability insurance covers you for third party injury or death. It helps protect you and your business when you are liable for negligence. This can be as simple of someone falling over in your shop but other examples include:
- food poisoning
- property damage, such as causing a fire
- providing bad advice, e.g. selling a commercial fridge to a restaurant that fails to keep its temperature meaning the restaurant incurs a loss of inventory
- nervous shock, such as emotional distress or a recognised psychiatric illness
Third-party Personal Injury insurance
You cannot register a vehicle in Australia without this insurance however please make sure you declare you will be using the vehicle for business purposes.
Workers Compensation Insurance
If someone is injured or illness occurs in a workplace you have responsibilities to cover the costs which will be incurred, you cannot just send them off to a bulk billing doctor and pretend it happened at home. This insurance will cover worker’s compensation, first aid, and rehabilitation. There are authorised providers of this type of insurance and a list is available from APRA https://www.apra.gov.au/register-of-general-insurance
Some quick callouts. Sole Traders cannot cover themselves individually. Independent contractors may require their own insurance.
Other insurance policies you may consider include (not compulsory):
Accident and Liability Insurance
If your business is likely to be sued, then you should consider this insurance. For some industries this is mandatory, for others optional. Further information by industry resources can be found here https://www.business.gov.au/Planning/Industry-information
You might consider this insurance if you:
- are a company director or senior manager
- work in an industry that attracts large government fines
- collect personal data of customers
- sell, supply, deliver or in some cases service goods or services that could cause damage, injury or emotional distress
- provide professional advice
- sign contractual obligations that possibly could go wrong or not be met
Stock, Product and Asset Insurance
If your business would fail from loss of an asset or stock, insurance may reduce that risk and could include insuring for:
- Building and Contents
- Farm crops, livestock, machinery
- Goods in transit either as delivery or perhaps you own assets being moved like a bulldozer
- Electric or machinery breakdown and or including spoilt stock, for example food
Personal or Loss of Income Insurance
In the event of a disaster to you or your business could you or your family survive a loss of income? These are both personal and business insurances you may want to consider:
- Income Protection
- Life Insurance
- Disability insurance
- Business interruption or loss of profits (for specific insured dangers like fire)
- Management liability (protects personal assets)
- Employee theft or Fraud
Technology and Cyber Crime Insurance
Criminals are more likely to break into your computer network and damage or steal from your business than break into your premises today. Every year this becomes a bigger issue and you should take steps to protect both your expensive computer hardware and the even more valuable data that supports your business.
SUMMARY – Talk to an Insurance Brocker
Knowing what insurance policies you need can be complicated and we recommend that you speak with a licensed insurance broker or advisor. We also recommend they are licensed which can be checked on the ASIC website. https://connectonline.asic.gov.au/RegistrySearch/faces/landing/ProfessionalRegisters.jspx?_adf.ctrl-state=xxgvmg709_4