What insurance do you need to start a small business?

Small Business Insurance (Reading time: 2 minutes)

All businesses need insurance, but there isn’t one universal policy for all businesses. 

That’s because the cover required will depend on many factors including the business type, sector, industry and size. A real estate agent will face very different risks to an engineering firm, café or small factory. 

Before you choose a business insurance policy, you’ll need to evaluate your needs and also consider what is legally required to run your company. 

Small to Medium Enterprises (SMEs) face a sometimes daunting risk landscape, says Aaron Gavin, QBE’s General Manager, SME. 

“Those starting out are particularly vulnerable as in many cases they’re only one claimable event away from going out of business.”

What type of insurance do SMEs need?

There are more than two million SMEs in Australia and each one is different.

“SMEs are incredibly diverse and each business will have its own unique needs,” says Gavin.

A good place to start might be to think about insuring your property, your liability and your business interruption risk, he says. 

“To run most businesses, you need physical assets, so should have the appropriate level of property cover,” Gavin says. 

“Invariably businesses will have some liability, especially if they’re dealing with customers, so they’ll need liability cover too”. 

“In addition, most SMEs will want to consider some type of business interruption insurance, which is there to protect their income in their time of need when an event occurs and they’re unable to trade as they normally would.” 

Some SMEs may also have to meet specific legislative requirements or obligations as a member of a professional board or association or may have contractual responsibilities as in the cases of landlords to customers, Gavin adds.

For a small to medium business, insurers often bundle their business insurance products into business packages. These tend to meet the typical needs of a number of industry or sector-specific businesses, for example, cover tailored to tradespeople, professional services providers or commercial landlords.

A business insurance package is usually designed for SMEs because it bundles together a variety of broad coverages and can be more efficient and cost effective than buying multiple separate policies.

What type of insurance protects your assets?

Your property or business premises, your stock and products, computers, machinery or equipment are all examples of your key business assets, explains Gavin. 

“Be sure to consider the assets you physically need protected to be able to run your business. This may help you understand the type of insurance required specifically for your assets.”

For example, if you own a small import and export company, you will probably want to consider having property insurance to cover your building, contents and stock against events such as fire, storm or malicious damage, he says. 

Insurance for your revenue

Business interruption insurance operates to cover business cash flow and in the process also protects the owner’s income stream and their investment in the business”, says Gavin. 

Business interruption cover pays for ongoing costs that continue regardless of whether the business is closed or substantially affected. These costs include rent, mortgage repayments, fixed electricity, gas and water charges. It also covers additional costs incurred to minimise the effects of the closure or downturn, plus net profit and/or loss.

For example, a metro retailer’s ability to trade would be severely impacted if a water main bursts outside its premises, cutting off access and reducing customer traffic, causing takings to drop for weeks on end while the council attempts to find a fix.

What is public liability insurance?

Public liability insurance covers a business for the costs associated with legal action and damages if they’re found liable for injury or death of a third party, loss or damage of property, or economic or financial loss that happened because of negligence. 

 “Being sued for negligence is extremely costly and the likelihood of it happening to your business is unpredictable,” Gavin warns. 

For some industries, liability insurance is compulsory before you can legally operate, for example, engineering firms or businesses arranging public events or operating certain types of facilities.

Commercial Motor insurance

If you have a vehicle that you use within your business, or a small fleet of vehicles you will need to consider having commercial motor insurance, says Gavin. 

The vehicles may range from cars to visit clients, to small trucks or goods carrying vehicles. There is a choice as to the level of cover that can be bought and typically commercial motor polices offer a range of additional benefits including no windscreen excess for certain vehicles, driver repatriation, sign writing and cover for replacing keys and locks.

Speak to the team at Mitti today for further information.

This article first appeared on qbe.com/au and is reprinted with the permission of QBE Insurance. 

The advice on this website is general in nature and has been prepared without taking into account your objectives, financial situation or needs. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice. You should ensure you obtain and consider the policy wording or Product Disclosure Statement for the policy before you make any decision to buy it.

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Mitti Insurance Pty Ltd is a related entity of QBE Insurance (Australia) Limited.