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Whilst we believe that all businesses should be fully protected with insurance, the reality is that many still choose to take the risk.
There are various reasons for this, and in some cases it all boils down to the cost, especially in today’s business environment with costs being so important.
So if you absolutely have to keep your costs as low as possible, what is the absolute minimum level of business that you should have?
We’ll answer this by looking at three different scenarios which revolve around how much risk you are willing to take on.
Absolute minimum cover
“I don’t care about what I’ve invested into the business, I just don’t want to lose more money if I get sued for damages.”
What we’re looking at here is the absolute minimum level of insurance that a business should have.
Before we go any further we need to stress that we don’t recommend that businesses restrict themselves to this level of cover, but the reality is that some insurance is better than no insurance.
In this case we are looking at business owners who are happy to risk what they’ve spent on their business.
They take the view that if they lose all or part of their business due to a fire or some sort of accident, then they will cop it on the chin and move on.
We could be talking about a tradesman’s tools, a consultant’s computer equipment, a retailer’s shop fit-out and stock or even a fully operational factory.
It’s a pretty risky view to take, but one that many (unfortunately) choose to go with.
What they’re not willing to risk however is the potential to be sued if something went wrong, therefore having to pay more money than they have invested into the business.
How could something like this happen? Generally it involves another party suffering a loss due to property damage or personal injury caused as a result of your business activities.
If you and/or your business is found to be responsible for their loss, then you could be liable for damages totalling anywhere from a few thousand dollars to a few million dollars.
A case involving just a few hundred thousand dollars could easily send a typical small business and its owner into bankruptcy, so it’s vital to protect against this risk.
The type of insurance required in this case is public liability.
For more information about the specifics of the cover and how it works please visit our ‘what is public liability insurance‘ guide.
In terms of cost, a public liability policy can range anywhere from $400 for a small business through to a few thousand for a larger or more high risk business.
If you only want to take out the absolute bare minimum cheapest insurance for your business, then public liability will (in most cases) be the one you want.
It’s important to note that in some cases you will be required to take out additional insurance.
For example if you are leasing office or retail space, almost all lease agreements will require that you show evidence of having glass insurance.
Glass insurance simply covers all windows and fixed glass within the premises. The cost is generally very low and can be included in a package with your public liability cover.
Minimum coverage plus a little more
“I want to be protected if I get sued for damages, but I also want to protect what I’ve invested into the business.”
Thankfully not every business owner takes the view that they’re willing to risk everything they’ve invested into the business.
In this case you’ll need not only public liability insurance, but also insurance to protect the property owned by your business.
There are a number of ways to cover your property, depending on what type of property you need to insure.
If you operate a mobile business, such as a tradesman or consultant, then you’ll need coverage for your portable tools of trade.
Tools of trade may include traditional tools for a tradesman, whilst for a consultant it would be more like a smartphone and laptop etc.
These items would be insured under a general property insurance policy, and in most cases the items will be covered wherever you take them in Australia.
If you operate a small business with a fixed base, such as a cafe or retail shop, then you’ll need to insure your fit-out, equipment and stock.
These items can be covered under a business property policy, which as with most types of cover can be bundled under a single insurance package.
The costs involved in each of these insurance types will vary depending on the type of business and the amount of cover required.
Whilst the cover may not always be considered as ‘cheap’, it would certainly be a lot cheaper than having to replace all of your business property and belongings out of your own pocket.
Cost vs benefit
In the end it often comes down to weighing up the costs against the benefits.
If you can only afford the bare minimum public liability coverage, then that’s all you can afford.
But ask yourself this:
If you can’t afford a decent insurance policy, could you afford to replace everything – or even just enough to stay in business – if it was lost due to fire, theft or some other event?
No one can stop you from taking out the bare minimum insurance – or even no insurance at all – but before you make that decision just think about what’s at stake if things don’t go to plan.
PS. There are many more business insurance options available than those listed in this article. These are simply the bare minimum levels of cover that could be considered.