What insurance does small business need?

Starting out in business is both exciting and daunting. Thinking up a business plan, finding clients, and office space is first and foremost on your mind. Insurance is often overlooked. If you can’t afford the right level of insurance, you can’t afford to be in business. But, what types of insurance does small-business owners need?

1. Professional Indemnity Insurance (“PI”)

PI insurance covers you for claims brought against you by your client and third parties for negligent advice or services. PI also covers legal costs associated with defending the claim. As a professional, you must take out PI insurance, which covers your professional activities, before you start working for your first client or customer.

PI policies have a retroactive date applied to them, which is often the date you take out your first PI Insurance policy. Any work done prior to the retroactive date will not be covered. As long as you maintain PI insurance, you carry the same date from policy to policy and insurer to insurer.

The question that is asked is: “how long do I need PI Insurance”. The answer to that question is “as long as the entity exists”. For example, in the building and construction space, entities will need some further time after the business finishes to cover lengthy limitation periods. It is important to note that if you are practising as a sole trader, you personally are the entity. Accordingly, the professional risk sits with you “as long as you exist”.

From a risk management and insurance perspective, you should consider setting up an incorporated entity to operate your business. Use this link to read about the benefits of operating your business through an incorporated entity.

2. Public Liability Insurance (“PL”)

PL insurance covers you against the costs of being sued for personal injury or property damage caused by you and your actions, or those of your company and its employees.

There is often a misconception that you don’t need PL insurance if you don’t have an office and clients visiting that office. However, if for example you work in the building and construction industry or a trades business, it is likely that you will be performing site visits, or even meeting in coffee shops. These are considered to be your workplace. Accordingly, you need to hold PL even if you don’t have an office or have a home office.

3. Office Pack Insurance (“OPK”)

If you have an office, it’s likely to contain valuable equipment like computers, printers, iPad and mobile phones. Should these be stolen or damaged, the costs associated with replacing all your equipment could be in the tens of thousands and will be covered under the OPK contents.

One thing to keep in mind is that if you travel with your laptop and it’s stolen or lost outside of the office, it’s important to know that unless its specifically listed under general property, it will not be covered.

It is necessary to read your lease agreement to determine if you may need to cover glass breakage yourself under that agreement. It may not be automatically covered under contents insurance. Glass breakage is often a separate cover, which may need to be specifically included.

4. Income Protection (“IP”)

As a small business, the owners are the business. If you can’t work due to sickness or injury, IP insurance covers your monthly remuneration or share of the business during that period.

IP insurance may be covered under the owners’ superannuation fund. If that is the case, it is likely to be a cheaper option; but, it probably provides less cover and options in comparison to separate IP. When you review the income protection in your superannuation fund, you should consider how long the waiting period is and then determine whether you can wait that long without being paid.

Once you are satisfied with your coverage, it isn’t over. You should regularly evaluate your policies with your broker as your business grows. The number of employees, changes to your business activities or even state regulations could impact what types of policies and levels of cover you need.

5. Workers Compensation Insurance

If a work-related accident or illness occurs, your workers should be able to get:

• first aid
• workers’ compensation
• return-to-work rehabilitation (under work health and safety law).

As an employer, it’s compulsory to have workers’ compensation insurance to cover you and your workers against financial hardship due to an accident or illness. In most cases, you must provide accident and sickness insurance for your employees or workers’ compensation through an authorised insurer.

It may be necessary to have workers’ compensation to cover contractors who work in, or for your business. It is necessary to check with the workers’ compensation authority in each state or territory to make that determination. Use this link to access the information about workers compensation for each of the states and territories.

6. Other Cover

Depending on the type of small business, owners may need to consider other cover such as:

• Management liability — this is referred to as “Directors & Officers Insurance” and protects against litigation and investigations into the management of the company. This type of policy has typically only been taken out for larger companies.
• Commercial motor insurance — this is if the business operates cars or small truck. It will also be necessary to hold third party personal injury insurance for any injury or damage caused to third parties or their property by those motor vehicles.
• Cyber risks insurance — this is now arguably the biggest issue for businesses. This includes exposing personal information of customers in a data breach and ransomware attacks.

In addition to putting the right insurance in place to protect assets, small-business owners must protect the investment they make in their business as a secured loan on the PPSR. This will give them the best chance to deal with sudden financial difficulty and insolvency. Use this link to read more about the benefits of small-business owners protecting the investment they make in their business as a secured loan on the PPSR, or go to www.krodok.com.au to learn more.

It is really important for small-business owners to seek the right advice about what insurance types and levels that they need. An insurance broker is an experienced professional as to what cover businesses need. There are a number of brokers that specialize in small businesses.

Thanks to Carina Bogaard and Simon Gray from Planned Cover for their assistance with writing this article. Planned Cover is a specialist insurance broker for architects, construction and trades businesses www.plannedcover.com.au. Planned Cover has experts in all states of Australia.