- Every business owner, especially small business owners, need to be fully aware of the importance of adequate insurance protection.
- What are the insurance types and why do we need them? Let's cover the most important insurance types one by one.
- This article explains why it's important to manage your insurance policies as your business grows.
Editor's Update 07/07/20:
Does a sole trader need workover? As a sole trader, you can't cover yourself as an employee through a workers' compensation insurance scheme. It is your responsibility to consider personal insurance for death, illness, disability and injury. It's possible to cover yourself for sickness and accident with a private insurance scheme.
Are sole traders personally liable? Sole traders are personally liable for personal and business debts in an insolvent situation. This means a sole trader's business assets can be pressed by creditors.
If you’re a sole trader or small business owner, you should be fully aware of the importance of adequate insurance protection.
Small businesses represent more than 96% of all businesses in Western Australia. In Australia, that’s over 2.1 million small start-ups operating. For sole traders or business owners to foster success, risk management is critical.
If you’re looking for a small business insurance quote, this article offers insight into insurance essentials.
How to compare small business insurance
Not all insurance coverage is the same. To manage your risks and offer the best level of protection for your brand and industry, here’s what you should consider:
1. Know what types of insurance you need for your small business
It's likely that you'll need more than one type of insurance for your business.
It doesn’t matter what products or services you sell or what industry your small business is in, accidents can happen. If unprotected, the impact on finances and reputation can be costly.
To find the right insurance product for you, start with what’s mandatory.
In Australia, you’re required to take out workers compensation, but depending on your trade, or the services you offer, you may need additional coverage. Different businesses have different requirements.
Here are some of the insurance product options available for small businesses:
Essential for keeping your employees safe. If you have more than two people working for you, workers’ compensation will most likely be your most important insurance cover. It’s required to protect against staff who are injured on the job. Wage replacements and medical and legal costs are some of the expenses workers’ compensation will cover.
If your small business offers advisory services, you’ll need to take out professional indemnity insurance. PI protects if claims are made against you including breaches of confidentiality, conflicts of interest, negligence, breach of duty of care and civil liabilities.
Public liability insurance protects against financial risks if damage has been caused by your products/services. Property damage, injury or death can occur due to negligence, resulting in substantial losses. If claims are made against your business, public liability will help to cover the costs and protect your business’s reputation.
Coverage against inadvertent breaches of legislation, but deliberate illegal or unethical practices are likely to be excluded. Management liability will protect your assets and small business. This level of insurance is complex but can include other policies such as cyber or privacy liability and employment practices liability.
Income protection isn’t compulsory. However, this insurance cover is a valuable investment for long-term security to ensure against loss of earnings through illness or injury. Protection policies cover up to 75% of your pre-tax income and can be claimed, providing you continue to pay your premium. Another policy option to compare with income protection is personal accident insurance (PAI), which may be beneficial depending on your small business needs.
Life insurance is paid as a lump sum payment in the event of a death or diagnosis of a terminal illness. Should the worst happen, mortgages and other debts can be paid off, as well as children’s education, bills and funeral arrangements. As with income protection or PAI, this isn’t mandatory but provides peace of mind and financial security for dependents.
2. Understand that home businesses still require coverage
Just because your small business is set up at home, doesn’t mean you don’t need insurance.
Even the most vigilant business owners who operate to the best of their ability are still at potential risk. Online shops, for example, may store products and supplies in a home garage. If your house burns down and these products are destroyed, your homeowner’s policy may not cover the loss.
3. Policies must be managed as you grow
Insurance isn’t a set and forget investment. As your small business grows, the amount and type of coverage you need will also change.
The coverage in your initial Business Owners’ Policy (BOP) may not reflect the business needs and risks faced today. To ensure details remain current, insurance policies should be reviewed on a yearly basis.
Even if your business needs haven’t changed, regular management will also encourage you to compare prices and policy deals.
4. Cover for all business activities (and people) is essential
Different small business insurance quotes and policies are tailored for different requirements. It’s critical to check your coverage adequately supports all your business activities and people.
A common omission in some policies, especially workers’ compensation, is failing to offer coverage for contract workers or freelancers. These staff members still need protection regardless of how little, or on what terms they work for you.
Never assume your policy covers all business activities and staff based on its type. Insurance requirements vary between states and industries. Always check state requirements and exactly what your policy does and doesn’t cover to determine if it’s right for you.
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