What types of insurance should a business have?
Insurance often seems like an enormous waste of money… until you need the cover.
Depending on the unique size and nature of your business, some insurance options may or may not be necessary. However, everybody venturing into a business venture should take the time to evaluate what insurance options they may require.
Insurance can work in various ways. Some insurance companies are investment-type funds where your contributions can gain additional profit over time. Alternatively, other insurance companies will expect regular payments to be made by you to enable your cover.
Before committing to anything, it’s vital that you investigate the specific details of each policy and company. If it doesn’t meet your needs and adequately cover you, you could be frustratingly pouring your cash down the drain.
Tax audit insurance
As we have mentioned in a previous article, tax audit insurance is very important for most small business owners. This type of insurance covers you for all the associated fees relating to dealing with the tax office in the case of an audit. Your tax accountants don’t make any money out of the insurance. It simply reduces your costs if you are chosen to be audited.
Because the ATO now have an outstanding data matching system and are conducting more audits than ever, tax audit insurance is critical.
Workers’ compensation insurance
If you employ staff, you will need to acquire workers’ compensation insurance. This ensures that workers can access first aid, compensation if injured and unable to work, and return-to-work rehabilitation.
As a sole trader, you cannot be covered as an ‘employee’ of your business with workers’ compensation. Instead, you will need to seek your own personal death, illness and disability insurance. These insurances through private insurers should compensate you in the incidence of lost revenue whilst you recover.
Public liability insurance
A popular type of insurance for small business owners or sole traders is public liability insurance. In the case that you are liable for damages or injuries to another person or property, this will cover your legal costs.
Other similar forms of insurance can include: product liability insurance (if your product causes injury, damage or death), professional indemnity insurance (if your professional advice causes injury, damage or death) and cyber liability insurance (if you breach security of electronic information).
If you own a registered vehicle, you will already be paying third party personal injury insurance as part of your registration fee.
Income protection insurance
Both sole traders and bigger business owners should obtain income protection insurance. In the unfortunate situation where you are injured or ill and unable to work, this insurance will cover you for lost income as a result of the injury or illness.
Types of insurance associated with loss of income include: disability insurance (covers part of your normal income if you become disabled), employee dishonesty insurance (covers losses resulting from employee fraud and theft), and business interruption insurance (covers loss of profit due to business damage by fire).
Personal insurance
Personal insurance will give financial security to you, or your family, in the case of illness, loss of ability to earn income, total and permanent disability, and death.
Forms of personal insurance can include: life insurance (provides a lump sum if you die or suffer permanent injury), total and permanent disability insurance (provides a lump sum if you are permanently disabled before retirement), and trauma insurance (if you have a specific life-threatening illness).
Stock, product and equipment insurance
If you rely on stock, products, assets or equipment for the smooth sailing of your business, you should consider insurance options to cover these items. Different insurance providers may provide a comprehensive product and asset insurance, whereas others will offer more specific insurance types.
Related insurance products include: building and contents insurance, burglary insurance, deterioration of stock insurance, electronic equipment insurance, farm insurance, goods in transit insurance, machinery breakdown insurance, tax audit insurance, property in transit insurance.
As mentioned previously, the types of insurance that you choose to invest in will depend entirely on what matters to you and your future business direction.
Always get a microscope and read the fine print – you need to ensure that your chosen policy can provide you with all the cover you require.