The pro's and cons of small business insurance

The basic premise of insurance is that it provides protection in the event that something goes wrong.  In the small business context, that ‘something’ can be a natural disaster, a fire, a robbery, a lawsuit, and the loss of key employees (e.g. through physical injury).

The story goes that having insurance that kicks in when any of these events occur (depending on the type of insurance cover) eases potential financial losses, ensuring that business can continue with minimal disruptions and sleepless nights for the small business owner. Before rushing out to buy insurance products though, small business owners should also consider the downsides.

Insurance can be expensive, creating a significant cost burden for the business. Small business owners need to do their research and compare what is on offer from different service providers to make sure they are getting the best possible deal. Another way to contain insurance costs is to make sure that one is not over-insured. Small business owners may find that when they try to lay a claim, they do not enjoy the degree of cover they were promised at the outset, forcing them to cover some expenses out-of-pocket which they had thought their insurance would take care of.

This situation may arise when the small business owner did not pay adequate attention to the terms and conditions that were explained during the initial sales pitch, or when insurance companies do not use simple and clear language, resulting in the small business owner having an incorrect interpretation of what is being agreed to.

Other headaches associated with insurance are that insurance companies may drag their feet in releasing payment or use under-handed methods and arguments to avoid having to pay at all. Small business owners may find that their monthly premiums increase after laying a claim (due to the perceived higher risk), or that some insurance companies only allow claims after a certain amount of time has gone by since the small business owner started paying premiums.

So is it worthwhile being insured? This is a question that individual small business owners will have to answer for themselves, based on the type of business, its size and their appetite for risk.

Post By: Fadzai Munyaradzi