When to get insurance for your new business
Congratulations on starting your new business. By now you’ve chosen a structure to suit, such as sole trader, partnership, company, or trust, and sought expert financial advice. You’ve registered your business and secured the right licences and permits to operate, either online or in a traditional brick and mortar building.
You see promise for your business, and don’t think you need to take out insurance just yet. Some new businesses underinsure, or shirk insurance altogether, but managing your risk profile is a top priority. Only 54% of new businesses survive four years of operation. Risks include insolvency, environmental, reputational, political, economic, competitive, regulatory and financial. Just over half of new businesses survive four years of operation.
What to protect
Here’s how to protect your fledgling enterprise against what could go wrong. Depending on your type of business, you may need to protect:
- Business assets (including intellectual property rights)
- Directors, officers and employees
- Business owners
- Your earnings
Check if your type of business should take out compulsory insurance, including:
- Workers’ compensation insurance – if you have employees
- Professional indemnity insurance – for certain professional services firms as part of licensing and practicing
- Third-party personal injury – it’s a must if you own a motor vehicle and is usually part of your vehicle registration fee
In addition, once a business commences trading & entering contracts, contractual requirements may require certain insurances to be taken out.
For example, in NSW, building and trades contractors must have builders warranty insurance for each project worth more than $20,000. Otherwise, they’re liable for a six-figure penalty and possibly up to 12 months’ gaol.
How to manage unexpected costs
Claims by third parties due to alleged negligence by the company will incur costs to defend even when a court determines the company is not negligent.
Management liability insurance can protect a business in such circumstances.
You may need to invest in stock, products and asset insurance, accident and liability cover, as well as technology and cybercrime protection. There’s a full list on this government website.
Make these your priorities
If you’re running your business from premises, it’s smart to take out commercial property insurance. That covers you for vandalism, fire, theft and weather-related issues. You can opt to insure your supplies and equipment.
Business liability insurance makes sense if you have a business site as it protects you against third-party property damage and injury claims. This comes in handy if a customer or visitor slips, falls, and injures themselves. It also covers your contractors or staff damaging a customer’s property in the course of their work. You’ll find general liability insurance is often a must-have before you can sign a contract or business deal.
Types of business liability insurance include professional indemnity, general liability and product liability cover. For example, if you’re a consultant, professional indemnity insurance protects you when giving advice or a service to customers and something goes pear-shaped. Importantly, it covers you for claims from actual or alleged breaches of your professional duty, but not if you’ve acted criminally.
Taking charge of your risk profile
You might find the range of insurance cover somewhat overwhelming. Some will be relevant, others not, so there’s some navigating ahead. But, with the right planning, flexibility, funding and cover, yours can be among the businesses that succeed over time. It’s key to keep reviewing your risk profile regularly to check your policies are a best fit.
As a licensed insurance broker/adviser, we can help you customise and review policies to cover the risks of your business. Creating a package often results in you saving time and costs rather than taking out individual policies or trawling through comparison websites.
Australian Government website – business insurance