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It takes courage to go into business on your own. You must be prepared to take risks, but that does not mean you have to take unnecessary chances. Intelligent insurance is important, you work too hard in business to put it all at risk when an insurance policy with a reasonable premium can provide for emergencies and save a lot of grief.

There are many types of general insurance policies commonly used by small business. Few businesses will need all the policy types available and some will need more specialised policies. You should telephone at least three agents and get them to see you at your place of business or your home and have them make suggestions on the type of insurance you need.

You may wish to use the services of an insurance broker. They have access to insurance companies’ products and are well versed in the needs of small business. The small fee charged may be offset by the time and money saved in getting the policy that most suits your needs.

Impact of the GST

If you are registered for GST and you take out general insurance for business purposes, you will normally be entitled to claim input tax credits for GST included in your insurance premiums.

You can claim the input tax credits regardless of whether you have already informed the Commissioner of Taxation of your intention to do so. However, you must inform your insurer of the extent to which you can claim input tax credits on your premium. You will not be required to remit GST to the Australian Taxation Office (ATO) when you receive a settlement. However, you will still be able to claim input tax credits to cover GST costs, such as those included in the price of replacement or repairs for your goods. This information is current at 28 January 2000.

Evaluating the Policy

Disclose to the insurer everything about your business that may be relevant and keep this information up to date. Otherwise your policy may be void.

Before you pay the premium, you should:

• Compare policies – get at least three quotes
• Look not only at the premium but also the claim bonuses/discounts available
• Check what is covered – look at the wording and definitions
• Check what is not covered – think of the worst case scenario: can it be covered?
• When does your protection commence (ie immediate cover or otherwise)?
• Note particularly conditions of insurance related to the nature of your business: are some kinds of activity excluded?
• Claims procedures – can you rely on straightforward and prompt service. Ask others in similar businesses what their experience is
• Renewal conditions – are increases in value built in or do you have to declare any appreciation in asset values?
• Look at whether the insurance company is well established and whether they are prepared to discuss with you your insurance needs without undue pressure to buy.

Main Insurance Policies

Fire Insurance – is designed to cover the building, contents and stock of the business against fire, lightning, storms, impact, malicious damage and explosion of boilers. The standard fire insurance policy covers the depreciated value of items insured at the time of the loss.

Business Interruption or Loss of Profits Insurance – this insurance provides cover if the business is interrupted through damage to property by fire or other insured perils. It ensures that anticipated net profit is maintained, pays employee wages and pays additional working costs if alternative facilities have to be used. Payment of a claim under this policy is, however, conditional on the insured re-establishing the business.

Burglary Insurance – this covers theft of property and damage from burglars breaking in. It does not cover theft by shoplifter or staff and you cannot claim for inconvenience caused or profits lost due to burglary.

Worker’s Compensation – this insurance is compulsory for all businesses employing staff. Workcover is the workers’ compensation system in New South Wales and is administered by the Workcover Authority. Penalties for failure by employers to take out worker’s compensation insurance were increased from 1 January 1996, including the introduction of imprisonment for up to six months as a penalty option under Section 155 of the Workcover Legislation Act 1995.

Personal Accident or Sickness – if you are self employed or a subcontractor, you are not covered by workers’ compensation insurance. It is particularly important for you to provide yourself with funds to compensate for loss of income because of illness or accident.

Fidelity Guarantee – this covers losses resulting from misappropriation by people who handle goods or cash (ie embezzling or stealing).

Money – covers loss of money being taken to and from the bank and whilst on your premises. It can be extended to cover money taken home overnight or deposited in a bank night safe.

Public Risk – covers your legal liability for compensation if someone who is not an employee or a family member (third party) suffers injury, damage to property or death as a result of your business operations, should you be negligent.

Electronic Equipment Insurance for Computers – computer insurance is designed to cover sudden and unforeseen loss or damage. It does not cover the cost of preventative mechanical maintenance or general wear and tear.

Machinery Breakdown – this policy is designed to cover breakdown of all mechanical and electrical plant and machinery at the work site. The policy can be extended to cover spoilage of foodstuffs consequent of such a breakdown.

Superannuation – it is compulsory to provide for employee superannuation. The minimum level of contribution is 9% of employees’ gross income.

Professional Indemnity – there is a growing trend for legal action to be taken against professional advisers for losses incurred as a result of following their advice. This insurance is not cheap, but it could be critical for people who work as consultants or who set themselves up as experts.

Product Liability – this policy covers the damage caused to another business and/or personal injury by the failure of your product or someone else’s product you are selling. That other product only has to be modified or assembled by you to be considered your responsibility. The damages claimed against you could be high if your product was a component in an expensive piece of equipment that failed due to your product. Sometimes you may be able to have your public risk policy endorsed to cover product liability.

Partnership – it is wise for all partners to consider insurance on one another’s lives. The purpose of this type of insurance is to give the surviving partner protection against the demands of the deceased partner’s estate.

How Much Insurance Do You Need?

• If you have to make an insurance claim, do you know how much it would cost to replace the assets? Many businesses risk financial disaster through under-insurance.
• People often misunderstand the terms of a replacement policy. A replacement policy aims to replace or restore property as new. These policies often have an upper limit on the amount payable and unless you are aware of this you could believe that you are better covered than you are.
• Another term that is often misunderstood is the co-insurance clause. This means that if the sum insured in your property falls substantially below the full value of the property you are entitled to be compensated for only a proportion of the loss.
• It is very important that you insure your assets for their replacement value in today’s prices. If you’re not sure of the replacement cost you may need the services of a qualified valuer to establish what your assets are worth.

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