Advantage & Disadvantage of Insurance

As a small-business owner, you must assess the risks of your particular enterprise to determine the advantages and disadvantages of commercial insurance. If you're a sole proprietor, you might be fine simply setting up an automatic savings plan as a cushion against unforeseen expense; however, if you're the owner of a larger business, you may need commercial insurance to protect against greater risk. The type of business you have also factors in; doctors, for example, are exposed to greater risks than realtors.

Types of Commercial Insurance

In America, all small businesses that employ workers are required by law to have some insurance coverage, such as workers' compensation, unemployment insurance, and in some states, disability insurance. If your business uses a car or truck, your state may also require you to purchase commercial auto insurance. However, there are many additional types of insurance beyond this basic minimum. General liability insurance is a broad umbrella policy that covers a business against injuries, accidents and claims of negligence. Product liability insurance covers against financial loss from claims of injurious product defects, while professional liability covers service businesses against claims of negligence, malpractice and errors. Commercial property insurance covers the loss of your business property from fire, vandalism or severe weather, according to the U.S. Small Business Administration. These policies can be purchased separately or as part of a bundle called a business owner's policy.

Expense

Although business insurance may offer you a hedge against disaster and help you sleep more soundly, it rarely comes cheap. The expense of business insurance is its main disadvantage for small-business owners, who seldom have a lot of cash to devote to "what ifs." You should shop around to get the best possible commercial insurance rates, but be careful to check out an unfamiliar company to be sure it's reputable. You may also choose a policy with a higher deductible to cut your monthly payments, but if you do, prudence demands that you set the deductible amount aside in case you suddenly have to come up with it. You must also weigh the coverage a cheaper policy affords. In some cases, the skimpy coverage may not justify the expense.

Limitations

Commercial insurance, like all forms of insurance, comes with limitations and exclusions. If your business is exposed to greater-than-average risks, any insurance you buy will include a list of exclusions. Sometimes these exclusions rule out the very things you wanted insurance for in the first place. There may also be an annual dollar cap on paid losses, effectively cutting off your coverage at a certain threshold. In the event of a massive disaster or a huge lawsuit, your insurance policy might cover only a portion of your losses. If you have a claim, you must also be careful to comply with reporting requirements. Some insurance companies are notoriously slow to respond to claims, citing incorrect reporting as the reason.

Advantages

Some insurance coverage, such as health insurance, is a necessity in a world where one serious illness can cause you to lose your home. If a fire or other disaster strikes, commercial insurance can be the difference between staying in business or going bankrupt. Depending on the policy, it can replace lost income and money, restore damaged or destroyed property, or provide a shield against a lawsuit. Commercial credit risk insurance can also reduce the risk of doing business, because it covers you against customer bankruptcy, refusal of delivery or other non-payment.

Courtesy : CHRON