Current as of October 2015
We all know that running a business carries risk, so it makes sense to insure against that risk. There are a range of different types of business insurance designed to provide financial support when things go wrong. Different types of businesses require different kinds of insurance. If you’re in business, you should seek customised advice for your needs, but some common types of business insurance are:
If you have employees, this insurance is compulsory. Each state operates its own Workers’ Compensation Scheme, which are designed to protect employees in the event of an accident or sickness. For businesses located in NSW, more information can be found at www.workcover.nsw.gov.au.
These policies protect you from legal action taken against you if someone suffers a loss as a result of your professional advice. This type of insurance is often compulsory for practicing members of professional associations.
This insurance covers compensation and legal costs you may have to pay if you are found liable to someone because your business caused injury or death to them, or damaged their property.
Where your business sells goods, or even carries out repairs to products, you may need to insure against claims where the goods have caused damage or injury to others.
Covers damage or loss to buildings, contents and stock (including in transit).
Theft and burglary
This policy covers your business against theft of or damage to equipment, stock and contents if someone illegally accesses your premises.
Motor vehicle insurance
Each state also operates its own Compulsory Third Party insurance scheme, so if your business operates one or more vehicles, you will be paying CTP insurance as the bare minimum for those vehicles. You should also consider third party property damage, third party fire and theft, or comprehensive vehicle insurance to more fully protect your vehicles.
Employee fraud or dishonesty
This provides cover against fraudulent or dishonest actions by employees that directly results in loss of money or goods.
This covers losses suffered where a business can’t trade for a period due to loss or damage from a weather event, flood, fire or various other interruptions.
Tax audit insurance
Helps to pay for accounting and legal fees that might be incurred where you are audited by the Australian Taxation Office or various state tax offices (eg the Office of State Revenue in NSW). This is more fully discussed in our Why do you Need Audit Insurance? article from our October 2014 newsletter.
Directors and officers’ insurance
This insurance covers the Directors of a company for losses that are incurred as a result of wrongful acts in their capacity as Directors or Officers. This might include, depending on the policy, civil and criminal actions brought against the Directors personally.
This is new specialist insurance that helps businesses prevent and safeguard against data breaches, computer hacking, employer error and the like. Expenses related to management of the incident, remediation, legal costs and third party damages are the typical expenses that may be covered.
Key man insurance
A key man policy is a life insurance policy taken out by an employer on the life of a key employee or business partner. It is designed to ease the financial loss suffered where the insured dies or becomes permanently disabled.
If your business has multiple owners it is necessary to consider what happens in the event of death or permanent disability of one of the owners. A buy/sell agreement is usually entered into between the business owners, documenting how the business will be transferred to the surviving owners, and for what price.
For businesses of significant value, the ability of the continuing owners to quickly fund the purchase from the departing owner or their Estate is critical. Cross insurance policies are life insurance policies that the stakeholders take out on one another’s lives to provide funding for this purchase.
There are a number of ways that buy/sell agreements and cross insurance policies can be structured, so it’s important to take competent legal and tax advice to ensure that your arrangements are appropriate.
Business insurance is complicated. It’s important to take advice from qualified advisers, and to review your requirements regularly.
The above types of insurance fall into two main categories:
- Risk insurance – which covers the key man and cross insurance areas
- Business insurance – the other insurances mentioned above
You will usually need an insurance adviser that specialises in each area above to look after your needs.
If you’d like help, please contact us and we’ll put you in touch with the right adviser for your needs.
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation.