As a business owner, you or your business may be liable for a variety of damages or injuries that occur on your business premises or through the work that you perform. Insurance is an agreement where an insurer undertakes to provide a guarantee for compensation to an injured or wronged person for certain types of damage suffered by that person. It was introduced to help spread the risk for business owners amongst the community and to ensure that injured persons are paid compensation to help them with their injuries. There are different types of insurance that you will need for your business. If you have leased premises or a franchise agreement, the formal documents will set out the types of insurance that are required.
There are other types of personal insurance that will be discussed in section 8 on Estate Planning.
Public liability insurance allows business owners to protect themselves from general claims for injury caused by negligence. For example, if someone injures themselves on your business premises because they slip on water that is on the ground without a warning sign and that should have been cleaned up, the injured person can make a claim for compensation through this type of insurance for any injury or loss (for instance medical costs) that they suffer.
This type of insurance is necessary for businesses providing advice or services within specific industries. These can include where a professional has breached their obligation to provide advice for such things as:
While some industries have their own specific insurance that covers professional indemnity (e.g. lawyers in Queensland, Australia have one particular insurer that they must use for this type of insurance), this type of insurance is absolutely necessary for the majority of businesses to ensure that they are protected should their advice be deemed a breach of the law or negligent.
If your business sells or produces a product, then you will need to consider product liability insurance. This insurance protects a business owner against a claim if your product causes:
The point of this insurance is to protect you if there is a fault or failure in your product so that if you are deemed negligent and liable to pay compensation to someone who purchased your product, then you can continue to operate your business as the insurance pays the compensation.
Where a premises has a glass shopfront or uses a lot of glass, a landlord will invariably require the tenant to insure the glass against damage, whether intentional or accidental. For instance, where the business is part of a shopping centre or a strip of shops, damage may be caused by someone throwing a rock or deliberately damaging the glass in your shop or business premises. This type of insurance ensures that the damage is quickly and easily fixed without a dispute between the landlord and business owner over responsibility for the damage.
Where a business is affected by or is unable to trade due to circumstances outside its control (for example a natural disaster), business interruption insurance covers the loss of income for the period throughout which the business is affected, including the repair times. The actual amount that can be claimed will depend on the type of business and the type of loss suffered.
An example of a natural disaster that affects a business is flooding; such an event is not the fault of any party but it can affect the ability of a business to trade from its premises by restricting staff and customer access. Policies vary widely between insurers and most have extensive exclusions so business owners need to compare policies carefully to understand how a policy’s restrictions may affect a claim and to find the one that offers the best coverage for their particular business.
Any business that relies on its stock, inventory and/or products for its income should have stock insurance to cover it for the replacement of stock and products in the event of a disaster. The purpose of this insurance is to ensure that where the stock or products are damaged through no fault of the business, its employees or the business owner, they can be replaced and the business can continue to trade.
When you obtain an insurance policy you are entering into a contract with the insurance company. Before you enter into such a contract you need to obtain competent advice from an insurance broker, a solicitor, or both. Any insurance contract will very carefully set out the conditions of insurance and, more importantly, the limitations of that cover, called exclusions.
Consult with your lawyer in relation to these conditions and exclusions to ensure that you are aware of what exactly your insurance covers and what it does not.
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