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Business insurance plays a vital role in the risk management strategy of any businesses. No matter the size of your business, the right insurance policy can be the difference between survival and bankruptcy following a significant loss.
Because no two businesses are alike, your insurance policy needs to be tailored to meet the specific risks facing your business. Business insurance policies are designed to allow maximum flexibility, enabling you to select the valuable assets and events you want to insure against.
This flexibility and choice, however, can give rise to complications if you don’t have a good working knowledge of business insurance. Below is a high-level summary of some of the specific risks you can insure against and a few tips to keep in mind when setting up your policy.
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Generally the cornerstone of your insurance policy, this section insures your building, contents, machinery and stock against defined threats such as fire, storm, and accidental damage.
Make sure your ‘sums insured’ covers the full replacement value. All insurance policies include an under-insurance clause which allows insurers to limit claim payments if your building, contents or stock is not insured at full replacement value.
Find a policy that offers accidental damage cover. It provides much broader coverage which can make a big difference at claim time.
Research has shown that this section is one of the most under-insured risks for small to medium businesses in Australia. Unfortunately, it’s also one of the most critical covers if you want your business to survive a major crisis.
Business interruption insurance protects your business income if you’re unable to operate from your premises due to Property Damage (see above). If you’re unable to trade, you still need to meet your fixed expenses such as loan repayments, rent and wages. Business interruption insurance can supply you with an income stream to pay for fixed expenses and replace lost profits.
An under-insurance clause also applies to this section, so it’s important to calculate the correct sum insured.
Having some cover is better than none at all. You can adjust the indemnity period (duration of the income stream) to help reduce costs.
Legal Liability / Public Liability
This section provides compensation payments where you (your business, employees or products) are deemed liable, for third party property damage or personal injury claims.
- Disclose all business activities. If your activities change during the year, advise your insurance broker. Undisclosed activities can have a significant impact on claims.
- For insurance purposes, if you import any product into Australia you are deemed to be the manufacturer.
- If you use sub-contractors, find out if your policy covers their work and any personal injury claims if they’re injured on site.
- Ask your insurance broker if any additional endorsements have been added to your policy. These endorsements alter the cover offered by your insurance, so it’s important you understand them all.
- Read the exclusions detailed in your policy wording! A few exclusions worth mentioning are: faulty workmanship, product recall and contractual liability.
This section covers theft of business contents and stock following forcible entry.
Generally, the definition of theft includes some form of ‘forcible entry’ statement. This means that if someone steals something from your premises during trading hours, it’s not covered – which is more common than you might think! So ensure your insurance policy includes a sub-limit for theft without forcible entry.
The definition of theft also states that it’s for business contents or stock and doesn’t cover employees’ personal items such as handbags, laptops and phones. So ensure your insurance policy includes a sub-limit for employees’ personal effects.
This section excludes theft of money so cash must be insured separately.
Protects against loss of business money from theft, armed robbery or fire. Generally cover is broken down into categories, such as: during business hours, outside business hours, in a safe, in transit or at home.
- Some insurers offer combined cover which includes all the above scenarios. This can often be the cheapest and simplest option for comprehensive cover.
Covers accidental or malicious damage to external and internal glass at your business premises (including damage to sign writing, advertisements or film on the glass).
- This section includes a benefit for damage to signs. If you have signs on or around your building, this cover is important because damage to signage is excluded from the Property Damage section.
Covers loss or accidental damage to business property away from your premises. Common examples include mobile phones, laptops, tools of trade, stock samples and mobile machinery.
- Theft of portable property under this section needs to be via some form of forced entry. Therefore, if tools, for example, are left in the back of a ute, make sure they’re secured.
Pays for the repair or replacement of business machinery that has broken down. Common items include fridges, freezers, air conditioners and manufacturing machinery.
You can add cover for spoilage of stock following the breakdown of a fridge / freezer.
General wear and tear is not classified as a breakdown.
Electronic Equipment Breakdown
Pays for the repair or replacement of business electronic equipment that has broken down. Common items include computers, servers and printers.
Any data lost on your hard drive following a breakdown is excluded. If your business stores data electronically you may need additional cover to pay for the cost of restoring lost data.