Insurance safeguards your business and assets in the event of theft, fire, liability claim or other unforeseen events. Learn all about the different types of insurance for small businesses.
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Insurance is one of the building blocks of starting and growing a successful business. Having adequate insurance in place could be the difference between being able to navigate your business through an unexpected event or having to close your doors.
According to QBE SMEs and Insurance Report (2019):
87% of small business owners agree that a liability claim could potentially put them out of business
33% of small business owners don’t know how they would find the money to pay off a claim or fund legal costs
46% of business owners say that the knock-on effect of losing clients in the event of a claim is the biggest threat to their cash flow
Source:QBEs 2019 SMEs and Insurance Report
No great business venture comes without risk. It’s often a case of the bigger the investment or opportunity, the higher the stakes and potential loss. Whether it’s accidental damage, natural disasters, cyber security or business interruption, your risk exposure can be managed with careful planning and a good business insurance policy.
The purpose of this page is to introduce the different types of insurance for small businesses and help you get a clearer idea of the cover you may need. We can also send you in the right direction of insurance brokers who can advise you based on your particular circumstances.
What is business insurance?
Business insurance protects businesses in the event of unforeseen incidents such as customer or staff accidents, damage as a result of natural disasters, negligence claims, theft or burglary. An insurance policy can cover the costs you may have to pay out, such as expensive litigation fees and renovation work.
What risks do small businesses face?
There are many different types of insurance and the cover you need will depend on the industry, type of business and size of the business among other factors. The risks SMEs face is industry and business-specific, but some typical examples include:
A customer slips or trips in your premises:If a customer, client or member of the public has an accident or injures themselves, public liability insurance can cover the costs of their injury and also any costs relating to legal action.
A storm or fire causes damage or destroys your shop:Property and contents insurance will cover the cost of lost or damaged stock as well as repairing or replacing fixtures and fittings. A business interruption policy can also compensate you for an agreed timeframe while your shop undergoes renovations.
A consultant gives poor advice:If a client receives professional advice or services that cause damage in some form (either physical, emotional or financial, etc) a professional indemnity policy can cover the legal costs and also compensation for the client.
Why take out business insurance?
There are many reasons why you should consider taking out business insurance including:
Avoid financial hardship and stress:Could you afford to dip into your savings to cover legal fees, compensate a client or close your doors for weeks or months to fix and repair your premises?
Safeguard your business:Insurance is a safety net that enables you to support yourself and your family financially if something were to happen.
Insurance premiums are tax deductible: You can claim your insurance as an expense to reduce your tax liability.
Is business insurance required for all small businesses?
In Australia, there are two types of insurance that are compulsory for businesses:
Third party personal injury insurance
Workers’ compensation insurance
Public liability insurance may also be compulsory depending on your business activities.
What is workers’ compensation insurance?
Workers’ compensation insurance (also known as WorkCover), is compulsory for all sole traders who employ staff. A workers’ compensation policy usually offers your employees first aid cover, workers’ compensation and return-to-work rehabilitation benefits.
Every state and territory protects employees in the event of an accident or sickness by offering workers compensation. As the states are free to determine their own regulations in this area, businesses must refer to the government resources which apply in their jurisdiction:
Do I need workers' compensation insurance as a sole trader?
As a sole trader, you can’t cover yourself under your own workers’ compensation policy (unless you can be legally regarded as a working director). This is why it’s important to consider alternative income protection policies to cover you if you are unable to work due to sickness or injury.
What is compulsory third party (CTP) insurance?
Compulsory third party insurance covers claims made against a person or business for personal injury resulting from the use of a company vehicle. CTP insurance is required to register a vehicle, though most businesses choose to take out a higher level of insurance which covers damage to property or damage to their own vehicle.
Every state has its own compulsory third party insurance regulations:
In addition to the compulsory insurance policies above, there are many options available to protect your business assets and income. These include:
Professional indemnity insurance:Protects businesses from the costs of legal action taken against them by people who suffered losses when relying on their professional advice or services.
Property insurance: Covers damage to buildings and other properties caused by accidental damage or pre-approved ‘insured events’
Public liability insurance:Covers legal costs and compensation if a business is found to be liable for a member of the public’s death, injury, loss of property or economic loss.
Product liability insurance: Covers legal costs and compensation if a business’ products are found to cause damage, injury or death.
Theft and burglary insurance:Covers losses sustained when someone steals from a business or damages their property while trespassing (this does not usually cover stolen cash)
Money insurance:Covers cash that is stolen from a business.
Commercial vehicle insurance:Third party insurance is required, but can be upgraded to cover property damage, fire and theft or be fully comprehensive.
Tax audit insurance:Covers costs that may be incurred by a business when the ATO conducts an audit or tax investigation
Business interruption insurance: covers losses a business sustains when they cannot continue work due to an insured interruption, which typically includes flood, fire and weather events.
Stock insurance:Covers businesses for losses they incur due to stock deterioration and spoilage.
Glass:Covers the cost of replacing external and internal glass.
Employee fraud insurance:Covers losses sustained due to the fraudulent or dishonest actions of an employee.
Machinery/equipment insurance:Covers replacement or repair of machinery and equipment in the event of a breakdown. Some policies also cover damages sustained due to those breakdowns.
Property in transit insurance: Covers losses sustained by a business when their assets, equipment or products are in transit.
Computer and electronic equipment insurance:Covers losses sustained due to accidental damage to either computer hardware, electronic equipment or data.
What insurance is recommended for sole traders?
Although insurance is not a mandatory requirement for sole traders (unless you employ staff and therefore need workers’ compensation insurance) it’s highly recommended to take out an appropriate policy to help you cover the costs in case something went wrong.
There are typically three main insurance types for sole traders:
Liability insurance: Liability insurance is important if there is a risk that people will injure themselves due to your business or if you could damage third-party property. For example, if you are a plumber liability insurance will protect you if you damage a client's bathroom.
Professional indemnity: Professional indemnity insurance is vital for any business that provides professional advice as part of its service. It protects you from any damage or problem that arises from advising clients.
Business protection:Business protection covers you for costs incurred as a result of your business being interrupted due to things like damage, theft, fire, etc.
Business insurance gives you peace of mind that in the event of a fire, theft, liability claim or other unprecedented events, your business could survive. It’s not worth the anxiety of having no insurance looming over your shoulder.
If you’re unsure about the type of insurance you need, or would simply like to get some tailored advice, we can connect you withinsurance brokers here on SavvySME. We have put together some information on the type of services insurance brokers offer, how much they charge and how to hire.
You can also browse our articles and resources on business insurance, or reach out to our community members with your questions.
FAQ
Is it cheaper to go through an insurance broker?
Business insurance brokers have access to a much wider pool of insurers than consumers and non-specialist brokers. As such, they can often negotiate better premiums.
What ongoing insurance considerations are there for small businesses?
Insurance policies need to be reviewed and renewed each financial year. There are a number of considerations as the end of the financial year approaches:
All insurance policies need to be reviewed in full, checking in particular policy inclusions and exclusions.
Business inventory and valuations must be updated to reflect current values and costs
New vehicle and equipment purchases, as well as any new properties, must be reviewed and included in any valuations or policies.
Vehicles, equipment and properties that have been sold must be removed from policies
Business risks must be reviewed to cover changing circumstances, regulatory changes and likely events. E.g., businesses in semi-rural areas may be at particular risk of fire damage, and businesses in wetlands may be at a greater risk of floods. Both of those businesses may be at increased risk of having their data compromised if there is a change in privacy laws. It is important to review risks regularly.
Ensure that you have a contingency plan if your business cannot operate. That contingency plan may be a large emergency fund or a second source of revenue, but if these are not available then insurance can protect you in the event your business is interrupted.
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