Insuring your business A guide for business operators in South Australia www.statedevelopment.sa.gov.au/smallbusiness
Table of Contents 01 Overview... 3 02 Principals of insurance... 4 03 Types of insurance... 5 04 Summary... 8 05 Notes... 9 Insuring your business Page 2 of 10
01 Overview It is good business management to protect the assets of your business (including the owner) against unforeseen events. This protection usually comes in the form of insurance. An insurance policy may be broadly defined as a contract under which the insurer agrees, in return for a premium, to indemnify the insured for loss suffered as a result of the occurrence of specified events that cause the destruction, loss or injury of something in which the insured has an interest. This guide summarises the basic principles of insurance and describes the types of insurance coverage that you may wish to consider in your business. You should consult an expert in the field to assist you in determining the cover(s) that you as the business owner and your business require. Readers are advised: The purpose of this guide is to provide general introductory information. The guide does not purport to contain all the information that would be relevant to any particular business opportunity. The guide is provided to interested persons on the basis that they will be responsible for making their own assessment of that opportunity with the assistance of the information provided. All figures contained in the guide should be regarded as estimates only based on general samples and may be subject to error. The information in the guide should not be relied upon in substitution for professional advice and individual investigation. Persons interested in pursuing any particular business opportunity are strongly advised to fully inform themselves by taking professional advice as to the extent of their rights and obligations particularly in relation to any proposed investment. The guide is provided subject to the terms of the formal disclaimer, which appears on the last page. Insuring your business Page 3 of 10
02 Principals of insurance Here s a handy reference of several principles you should be aware of when choosing an insurance policy. Most of these are explained today in plain English on proposal forms. CHECKPOINT Principle What it means to you Duty of disclosure You owe the insurer a duty to disclose all material facts when you complete a proposal for insurance or are renewing or claiming under a policy. (A material fact is one that would affect a prudent insurer s decision about whether to offer you insurance and on what terms). Failure to disclose material facts may allow the insurer either to refuse to insure you or offer you some form of insurance only to withdraw it when the failure becomes apparent. Indemnity principle Written contracts Insurance agent To indemnify someone means to cover that person for their loss in a certain situation. Most insurances (except life assurance) are based on this principle. This means you can only recover the replacement value of your loss. Some policies use the stated value of an item as the basis for a claim, while others use replacement value. Make sure you know which is the case under your policy. Under the Insurance Contracts Act 1984, all insurance contracts must be in writing. Where you arrange insurance over the telephone or in person, a cover note will usually be issued. There is a temporary undertaking (usually for a period of one month) that the insurer covers you as agreed, subject to payment of the premium. Insurance can be arranged through agents and brokers. It is important that you recognise the differences between the two. Insurance agents often work for a single insurance company and will usually only be able to provide insurance offered by that company or those which their company represents. Be aware that an agent s primary responsibility is to their company, not to you. A broker does not work for a particular company. A broker can therefore assess the best company for your insurance requirements. Insurance broker A broker is your agent, not the insurance company s agent. This means that your interests should always be put before those of the insurer. This is particularly useful when dealing with claims. Since a broker acts for you, a broker s fee will usually be charged for arranging the insurance. Insuring your business Page 4 of 10
03 Types of insurance Insurance protection should be considered in three areas: LIABILITIES; ASSETS; INCOME LIABILITIES Employees Accident and sickness insurance cover must be provided for employees through an approved insurer. Self-employed persons should obtain accident and sickness insurance through a private insurer. ReturnToWorkSA provides insurance that protects South Australian businesses from the costs of a work injury. In the event of a work injury, you and your worker will be covered for essential support and services to minimise disruption to your business and to help your worker to recover and stay at work or return to work as soon as possible. Features and benefits include: Income support to cover your worker's loss of wages (limits apply); Lump sums for non-economic and economic loss in some cases; Reasonable and necessary medical treatment and care for injured workers for up to three years; Return to work services. If you have any questions about your entitlements, contact: ReturnToWorkSA (www.rtwsa.com / Tel: 13 18 55). Public This may arise from the operation of your business, from products sold and supplied or from professional negligence. Payment is made for damage to property and bodily or personal injury: Public Liability: Provides insurance cover against accidental injury to clients, customers and visitors to your business premises. This cover is considered essential to all businesses and cover of up to five million is normal for a small retail operation. Product Liability: indemnifies you as a manufacturer and/or distributor against injury caused by your product, or the use of your product. Note: if you are an importer or manufacturer you are legally responsible for the products you sell. Professional Indemnity: Provides insurance protection against negligence for professionals and experts delivering services, advice and information to clients. Insuring your business Page 5 of 10
03 Types of insurance CONTINUED ASSETS This takes many forms and each policy is designed to stand alone and not overlap any other policy. They include: Fire - can include impact, storm and tempest and malicious damage. Burglary - including loss of money in transit or held at home. Glass Equipment / machinery breakdown Computer damage - including reinstating data and increased cost of working. Building - generally only required if you on the premises in which your business is located. NOTE: It is common for a tenant to be required to insure plate glass against breakage in leased premises. If you are conducting a business from your home, the insurer of your home should be notified so that the policy can be noted and the premium adjusted if necessary. If you are renting your home and using it for business, check that your lease permits this. Motor vehicle -vehicles owned and used by the business should be insured, as would your own personal vehicles. If you are using your personal vehicle in the business, the insurer should be notified so that the policy can be noted. Marine. Premiums depend on the underlying risk. INCOME This covers several areas: Loss of profits or revenue your business must be able to survive after damage and a profits policy will assist in maintaining the trading result regardless of the loss. It needs to be remembered that, after a fire, wages must be paid or employees laid off (key staff a problem), customers may go elsewhere, records could be lost in the fire and loan repayments, leases and other debts continue. This cover can provide for loss of profits incurred during a period of nontrading due to the occurrence of an insurable event. You will have to provide evidence of actual profits lost. Personal accident of the business owner enables your income to continue in the event of sickness or accident. Life assurance and superannuation payable on death, permanent disablement and/or at a specified age. 03 Types of insurance INCOME CONTINUED Insuring your business Page 6 of 10
Partnership insurance life assurance owned by one partner on the life of another may enable the survivor to purchase the deceased s share of the business without having to sell or close the business. Key person insurance life assurance providing a lump sum upon the death or total disablement of a key employee. The money provides financial support until a replacement skilled employee is found and trained which may take many months. Once your needs have been assessed, insurance cover may be arranged directly with an insurance company or through a broker or agent. The choice is up to you but it is good practice to choose a medium and insurer wherever possible who are locally represented to enable personal contact and speedy settlement of claims. Insuring your business Page 7 of 10
04 Summary 1 2 3 4 5 6 Insurance for your business needs to address risks associated with liabilities, assets and income. There are several important principles you should be aware of when choosing an insurance policy. It pays to read the small print on insurance proposal forms. One of the most important insurances for anyone involved in a business is public liability insurance. This insurance covers your business against any liability you may incur to other people or their property. What other insurances you take out will depend on your assessment of the risk against the cost. Insurance does not change the law or reduce your fault it simply shifts the onus of paying for any liability from you to the insurer. Always consult an expert in the field to assist you in determining and obtaining the covers that you require. Insuring your business Page 8 of 10
05 Notes Insuring your business Page 9 of 10
Department of State Development GPO Box 320 Adelaide SA 5001 T: +61 8 8303 2400 E: DSDSmallBusinessStrategy@sa.gov.au W: www.statedevelopment.sa.gov.au/smallbusiness DISCLAIMER The Government of South Australia gives no warranty and makes no representation, whether express or implied, as to the accuracy of information contained within this guide or the suitability of the information for any purpose. Any use of the information contained in this guide (whether authorised or not) is at the users sole risk and the Government of South Australia disclaims responsibility for any loss or damage incurred as a result of such use. The information is provided solely on the basis that users of the information will make their own assessment of the accuracy of the information and users are advised to verify all information contained within this document. Any information about the law in Australia or South Australia is provided as general information only and is not legal advice. This guide is a starting point only and is not a substitute for legal or professional advice. While the Department has attempted to ensure the information is accurate at the time of publishing, no responsibility will be accepted for any errors or omissions and the Government of South Australia will not be liable for any loss or damage incurred by any person as a consequence of any use, reference or reliance on this information. Any such use, reference or reliance shall be at the sole risk of that person who should seek their own legal and/or professional advice if required. COPYRIGHT Produced by the South Australian Government July 2015 Insuring your business Page 10 of 10