Insurance is a difficult subject. You can be the best businessman or woman since Bill Gates and be confused by insurance. What do you need insurance cover for? What happens if this or that happens? How much is all this insurance going to cost me? Wouldn't I be better just taking my chances? Deciding on what you will need by way of insurance can easily cause a headache, particularly for small businesses. Even just working out what exactly is and isn't insurance can be taxing at times. What is insurance?
Insurance is a difficult subject. You can be the best businessman or woman since Bill Gates and be confused by insurance. What do you need insurance cover for? What happens if this or that happens? How much is all this insurance going to cost me? Wouldn't I be better just taking my chances? Deciding on what you will need by way of insurance can easily cause a headache, particularly for small businesses. Even just working out what exactly is and isn't insurance can be taxing at times.
What is insurance?
In general terms, an insurance contract is one where X (the insured) pays Y (the insurance company) a premium. In return for this premium, Y undertakes to provide a corresponding benefit to X on the occurrence of a specified event. For example, X enters a car insurance contract with Y whereby Y will pay out if X's car is stolen or involved in an accident. Nine times out of ten, the specified event won't happen and the insurance company will make a profit. The likelihood of the specified event happening will dictate the premium X will pay (i.e. if it's more likely, the premium will be higher).
How to get the best deal
In the US, there are many specialised insurers targeting various risks. Choice can be a good thing, but with insurance, it can often just lead to more confusion! How then do you know what insurance cover to go for and which insurance company to go with? A few things to bear in mind include:
1. The insurance market is a multi-billion dollar industry. There are many companies out there competing with one another for your business. So shop around! With the age of the internet, it's easier than ever to compare similar policies and prices. Once you have drawn up a short list of candidates, it's worth having your lawyer look over the policy wording to help you weigh up which one is best for the risk you are trying to insure. Cheapest is not always best.
2. Don't be afraid to negotiate. Most insurance companies will give discounts if you are looking to buy more than one insurance policy from them. If you have seen a cheaper policy elsewhere, query why this is the case and ask for this price to be matched.
3. Make sure you understand what the insurance broker is talking about. The insurance business is riddled with terminology and abbreviations so make sure you don't just nod along with what you are being told. If you don't understand something, say so and ask for it to be explained in plain English. Don't let the insurance broker rush you - you are the customer and your time is much more important so just keep asking questions until you are completely clear on anything that you don't understand or would like more information about.
4. Ask what happens if you want to discontinue the insurance policy - for example, are there any penalties attached to this?
5. Ask if there are provisions in the insurance contract on its variation. Can the insurance policy be changed or the premiums increased without your consent?
6. Is there any small print in the insurance contract allowing the insurance company to wriggle out of paying in the event of the insured risk happening? Having gaps in your insurance coverage may mean you end up paying insurance premiums for nothing.
Types of cover to think about:
1. Liability insurance: this will cover your business in the event of a lawsuit being filed against you.
2. Property insurance: this will cover your business premises and should cover the cost of having them repaired or rebuilt.
3. Key man insurance: where one or more individuals is key to the continuation of your business, it may be prudent to insure against the risk of their death or incapacity.
4. Automobile insurance: where you use vehicles for your business, you should insure the cost of having them replaced or repaired.
5. Professional indemnity insurance: if your business gives advice, this type of insurance will cover you in the event of claims of negligence.
It may be tempting for a small business to go without certain types of insurance and avoid the cost of insurance premiums. However, if a claim is made, the cost will often be much greater than the cost of insurance and in some cases could push a small business into bankruptcy.