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As a business owner, you will face several risks during your business journey. Whilst this can be worrying, there are actions you can take to protect your business from risk. One critical step to take is to put in place business insurance. Depending on the type of business you are operating and the risks it faces, putting in place insurance can give you comfort when trading. It can also help protect your business from unexpected risks and liabilities in the future. This article will explore how business insurance can protect your business from risk.
Why is Business Insurance Important?
Business insurance is a crucial risk prevention tool whereby an insurer will pay your business out if it suffers financial loss in certain circumstances.
Various types of insurance policies are available, depending on the type of business and its activities. By entering an insurance policy, the insurer will agree to pay your business certain sums if an insured risk occurs, which is covered by your policy.
You should regularly review and update your insurance coverage where required. If your business changes its activities, it may need a different type of cover to protect against new potential risks.
What Insurance Does a Business Need?
Insurance policies can be highly complicated and contain many provisions and caveats. Before taking out insurance, you should always ensure you understand the terms of the policy.
If you are unsure whether an insurer’s policy covers the risks you are concerned about, it is a good idea to seek advice from an insurance broker. A broker can:
- provide bespoke recommendations on your business;
- alert you to the risks your business might be exposed to; and
- clarify the type of insurance cover to put in place to mitigate those risks.
You should consider taking out insurance at the start of your business journey to help ensure you are protected from the time you begin trading.
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How Does Insurance Affect Commercial Contracts?
The types of insurance your business has could impact how you approach business transactions and your risk appetite generally. For example, as a supplier of products or services, you are likely to often negotiate limitation of liability clauses with your customers as part of contract negotiations.
Understanding how your insurance coverage will protect you in the event of a claim may influence how much liability you are willing to accept in your customer contracts.
Some business customers may also:
- insist on seeing copies of your insurance coverage; or
- require your contract to specify the levels of insurance coverage you agree to maintain.
Common Types of Insurance That Can Protect Businesses
It is essential to understand the types of insurance coverage available and consider which policies to choose to protect your business from risk.
| Type of Insurance | Explanation |
| Employer’s Liability Insurance | As an employer, you must have employer’s liability insurance in place. You are legally responsible for the health and safety of your employees when they are at work. Employer’s liability insurance can cover compensation claims made by employees resulting from work-related injuries. If you have staff, this cover is vital. |
| Professional Indemnity Insurance | This is vital insurance coverage for businesses that provide professional advice. This can protect your business against claims regarding negligence or errors in your advice. This is mandatory for certain professionals, such as solicitors. This can be of great benefit, for example, if a client brings a negligence claim against your business and the claim’s value is high. |
| Business Interruption Insurance | This policy can help your business replace its income if an unexpected event prevents you from carrying out your business as usual. Most policies will likely cover business interruption you suffer due to damage to premises or equipment caused by fires or flooding. This could be extremely important in the event of a disaster. |
| Cyber Insurance | Cyber threats and data breaches are a high risk for most businesses in today’s digital world. Cyber insurance can protect your business against these risks, for example, if a hacker causes a significant data breach. |
Key Takeaways
Running a business comes with risks, many of which could be unexpected liabilities that could arise at any time due to external factors. By implementing appropriate business insurance, you can help mitigate those risks and focus on growing your business. If you require advice on which types of insurance your business would benefit from, you should consult an experienced business insurance broker for support.
If you need legal advice on protecting your business from risk, our experienced commercial lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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