Business Basics: Insuring Your Business Against Risks
Having the appropriate insurance cover can help protect your business and minimise its exposure to risk. For new business owners, insurance may seem like another cost in a long list of expenses, however, if your business is uninsured (or under insured) you may struggle to recover from a negative event. For established businesses, a periodic review of your level of risk and cover is essential because your business will grow and diversify over time.
While some of the decisions regarding insurance have already been made for you (such as those required by law), you’ll need to identify the other risks present in your business and decide which ones to insure against.
The types of business insurance vary and usually protect things like business assets, customers, employees, business owners and your earnings. Some types of insurance are compulsory for businesses as a member of a professional board or association or required by a contract you enter into with a landlord or a customer. See below for a list of the most common types of business insurance.
Please note that the information covered in this article is general in nature and should not replace financial advice. Talk to a licenced insurance broker or business advisor for personalised advice.
Workers Compensation Insurance (WorkCover)
If you have a business in Australia and employ workers, it is compulsory to insure them against workplace accidents. Each State and Territory has its own workers compensation scheme and specific regulations. In Queensland, workplace insurance is via WorkCover Queensland and this insures you against all statutory and damages claim costs in the event of a work-related injury to your employees.
In Queensland, if anyone you employ meets the definition of a worker, then you must insure them within five days of commencing employment. Although contractors are distinct from employees, certain contractors may still be included as an employee or ‘worker’ for workers’ compensation purposes. Employers who are uninsured may be subject to penalties for unpaid premiums and any compensation costs.
If you’re hiring an employee for the first time you’ll need to be familiar with the legal requirements of being an employer. You can read our guide to hiring an employee for the first time here.
Public liability insurance
If you own a business, you can be liable for damages or injuries to another person or property. Public Liability Insurance covers you and your employees for potential liabilities to third parties if your products or services cause bodily injury or property damage. For example, it can provide protection if a customer slips on a wet area of your shop floor, or if an employee damages your customer’s furniture whilst carrying out repairs to their house. Though liability insurance is not compulsory for a business, every business should consider it if there is any likelihood of risk to the public.
Professional Indemnity Insurance
If your business involves providing a service or advice, then Professional Indemnity (PI) Insurance is a must. It protects professionals against liability for damages and the legal costs associated with claims arising from an act, omission, or breach of duty that occurs in the course of your work.
Professional Indemnity Insurance is applicable to many professions, such as doctors, consultants, engineers, architects, real estate agents, and accountants. In many professions it is actually a requirement to hold a PI policy in order to render your services. Each industry has its own unique set of risks which can be addressed in a policy tailored specifically for your profession. Your industry association will be able to provide more information on whether this is applicable to you.
Business Insurance often comes as a package encompassing a range of different options for you to choose from with the most common being building, contents, theft, and general property. It is designed to protect you for material damage losses from unexpected events such as fire, storm, theft, and accidental damage, and can also provide cover for loss or damage to portable and valuable possessions, including laptops and mobile phones. Your insurance provider may give you the option to bundle Business Insurance with your Public Liability policy.
Business Interruption Insurance
If a fire, storm or theft meant having to rebuild your business from scratch, or a minor emergency such as a burst water pipe shut your business down temporarily, how would you survive financially? Business Interruption Insurance helps you when you are unable to earn any revenue, or when your revenue suddenly drops. Business Interruption Insurance may be packaged as part of your Business Insurance and provides cover for the loss of income and increased expenses of running your business as a result of interruption caused by material damage events.
It is estimated that data breaches and sophisticated cyber-attacks cost the Australian economy over $1 billion annually and they are now considered one of the top emerging risks for business. If you have a website for your business or you store sensitive customer information on your computers or laptops, you should consider taking out a Cyber Insurance policy. Cyber Insurance protects your business in the event of a cyber attack. Whether your website is hijacked, or your sensitive data and client information is stolen, the costs of repairing the damage and the legal costs associated with a data breach can have a significant impact on your business.
Tax Audit Insurance
Audits, enquiries, investigations and reviews are conducted by the Australian Taxation Office (ATO) and other federal and state agencies to ensure business and tax payer compliance with various legislative requirements. These include Income Tax, Land and Payroll Tax, GST, FBT, Workers Compensation, Superannuation Guarantee and Self-Managed Superannuation Fund (SMSF) compliance. The ATO, along with other agencies, continue to announce significant increases in their audit activity. With this increase in audit activity, it may be time to consider Tax Audit Insurance for your business. Dealing with audits can be a time consuming, expensive and stressful event, often leaving you out of pocket by thousands of dollars. Tax Audit Insurance is designed to provide protection by covering expenses incurred during an audit or investigation, including professional fees from accountants, lawyers, bookkeepers, and any other advisors that are required.
Personal Injury and Life insurance
This type of insurance covers you for any personal accidents and illnesses that may happen and is particularly recommended if you are self-employed, as you won’t be covered by workers compensation.
Other Insurances for Particular Industries
- Product Liability Insurance – for businesses that sell, supply or deliver goods, this insurance covers injuries, deaths and property damage caused by the failure of the product.
- Deterioration of Stock Insurance - covers your business when chilled, refrigerated or frozen stock perishes following the malfunction of a refrigerator or freezer.
- Farm Insurance – to cover crops, livestock, buildings and farm machinery.
- Goods in Transit Insurance - covers the goods you buy, sell or use in your business during their transportation.
- Property in Transit Insurance - covers you for theft or damage of items you use for business purposes that travel with you, such as tools and equipment.
- Machinery Breakdown Insurance - covers your business when mechanical or electrical plant and machinery breaks down.
- Management Liability Insurance - protects the business and the people who manage the business against the risks and exposures of running the business such as acts of misconduct, legislative breaches, defamation, breach of duty, health and safety issues, and unfair dismissal.
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