Statistics show that around 60% of businesses in Australia fail within their first three years of operation. About 20% of businesses fail within their first year of operating.
There are many factors involved in starting a company that can get overlooked; it’s a time-consuming and complex process. One of the often-overlooked factors when opening a business is insurance. Whether you’re planning to start a new business or you’ve already launched one, choosing the right level of liability cover is crucial.
If you’re not sure where to start on choosing the right insurance for your business, this article is for you. It’s a comprehensive guide to the various insurance options available, the importance of insurance, and the types required by law.
Why insurance is important?
Insurance is important for every business because it can help reduce business risks. Not only can it help protect you and your business assets, such as equipment, premises and stock, but it can also protect:
- Customers
- Earnings
- Employees
Depending on the industry, some insurance types are required by law. For example, depending on the state or territory, public liability insurance is required for certain occupations.
The insurance required by law
Although it varies by state and industry, some insurance is mandated by law if you’re running a business. The most common types of business insurance mandated by law are:
- Public liability insurance: This type of insurance is designed to cover any loss or damage your business causes to a third party. It also covers legal liability for the personal injury or death of a third party (e.g., member of the public), compensation you’re ordered to pay due to a covered claim, and any legal costs incurred defending a claim. This is crucial for any business open to the public and required by law in some states.
- Workers’ compensation insurance: This insurance is required by Australian law if you have employees. It covers your employees in case they get sick or injured due to a work-related issue. It can help cover medical-related costs, their wages while they’re recovering, and more.
- Third-party personal injury insurance: If your business uses motor vehicles, this is required by law and typically part of your vehicle registration fee. It covers the drivers of your vehicle from claims for compensation for injuries or deaths arising from the use of the motor vehicle.
Professional indemnity insurance
Professional indemnity (PI) insurance helps cover the cost of legal action from claims against a professional providing professional advice or services. It is mandatory for some professions that are considered ‘high-risk’, such as:
- Accountants
- Architects and draftsmen
- Bookkeepers, BAS and tax agents
The professions requiring a minimum amount of PI insurance can also vary by state. For example, PI insurance is required for electricians in Queensland, plumbers in Victoria, and real estate agents in New South Wales.
Even if PI insurance isn’t a legal requirement for your business or field, it might still be worthwhile considering. If you’re not sure if you need PI insurance, we recommend contacting an insurance broker or authorised insurer to determine the right insurance for your business needs.
Other types of insurance
Depending on your business structure and industry, there are many other types of insurance you may want to consider. Below, we’ve outlined a few of them and how to decide if they’re for you.
Personal or loss of income insurance
It’s possible to get business and personal insurance for losses to your income. For example, some of these include:
- Income protection: This type of insurance covers part of your income if you’re unable to work due to an accident or sickness.
- Life insurance: This type of personal insurance pays you (or your beneficiaries) a lump sum or series of payments if you become terminally ill or die.
- Employee dishonesty insurance: This insurance covers your business for losses from theft or fraud by your employees.
Stock, products & asset insurance
These types of insurance coverage protect your business assets, property, stock or product. Examples of this insurance include:
- Burglary insurance: This covers any loss or damage that is associated with a break-in or theft.
- Farm insurance: This can cover crops, livestock, buildings, and machinery.
- Good in transit insurance: This covers any business-related items that you buy, use, or sell, that are lost or damaged during transport.
Technology & cybercrime insurance
With businesses increasingly relying on technology, they also need to consider how to protect themselves on the digital front. There exists a range of technology and cybercrime-related insurance products. These include:
- Electronic equipment insurance: This covers any electronic items that break down, are lost, or damaged while they’re at a specific location.
- Cyber insurance: This insurance protects a business from the costs of cybercrime. For example, it can cover costs related to data breaches and ransomware.
Deciding which one is right for you
When it comes to identifying which is the right insurance for your business, it’ll depend on your business. First of all, you’ll want to identify your business needs and any items that you can’t afford to lose.
A good general rule of thumb is that any assets, like equipment and stock, that aren’t easily replaceable, you should consider insurance for. If you’re unsure, it’s a good idea to seek professional guidance.
Understanding all the different insurance options can be difficult for even the most business-savvy people, especially when prices and coverage can vary. This is why you should always speak to an insurance broker or authorised insurer, so you can make an informed decision and find the right insurance for your business.
It’s important to understand that the advice in this guide doesn’t replace professional advice, and that insurance laws can vary by state. If you’re opening a business, you should always seek professional guidance for the required and recommended insurance options.
