Small business insurance can be difficult to justify

In the first few years, most business are struggling to survive. Even when trading conditions are good, there are many ways in which the business can fail. Starting up in this post-recession period makes the challenge to survive all the more difficult. Then comes the irony. Managing growth can be even more challenging because this often means additional investment at a time when the business does not have a sound financial base. So why should small businesses spend money they can barely afford on insurance?

The problem is the uncertainty of life. Often without being aware, businesses are surrounded by risks that can cripple them without warning. Even before you have started, someone working to get your building ready for use can slip and fall, making you liable. After opening, whether you sell goods or services, it only takes one person to be injured by what you do and that single legal case to recover damages can finish you before the business has begun to establish itself. Only with size does the business have a financial cushion or access to credit that may allow it to pay the attorney to deal with the case and any damages awarded. Except, of course, that once you borrow money using the business assets as collateral, the lender will insist on insurance because a fire could destroy the business and leave the lender with no security.

However, just insuring physical assets is not enough since any uninsured third party liability can bankrupt the business. Similarly, disruption or interruption of the business can destabilize the business. That’s why the business should look at contributions made by individual employees. If some key people are ill or injured, the business may be in trouble. Investment in health insurance, particularly focusing on preventive care, is essential to keep everyone well. If this fails, Workers’ Compensation for injured workers may shorten recovery times. If key people are to be replaced, there may be a gap before the right person is found. Business losses during this period can be covered.

In all this, a balance is being struck between the profitability of the business and the premium rates quoted for the small business insurance. With group health insurance rates rising for business employing more than fifty people, and the level of damages awarded by courts rising, you need to think very carefully about the amount of cover it’s economical to buy. When it comes to physical assets, you need to think very carefully about local risks. What are the local weather patterns? Is there a risk of flooding, tornadoes, hurricanes or freezing temperatures? Are you in an area prone to vandalism and theft? Only when you have a comprehensive appraisal of the risks and have an up-to-date summary of your financial position, can you make the best decision on whether it is the right time to buy small business insurance.

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