How the Insurance Effect the Performance of the Business
Every business needs insurance to cover the cost associated with liability claims and property damage. Without insurance, you would end up paying out of pocket for all the costly damages or legal claims. Depending on the intensity of the incident, this could prove to be a financially devastating scenario for a business.
I was doing some research on performance appraisal methods when I stumbled upon a blog about the importance of insurance for a business including its effect on performance. Hop on to learn about my findings.
What Type Of Insurance Does A Business Need?
Most small business owners choose BOP. It is a Business Owner’s Policy that unites business property, liability, and income insurance into one policy. You can also opt for business liability insurance which covers the cost of liability claims made against the business.
Let’s say a customer visits your office and ends up injuring himself on your business property, he could file a lawsuit against your company. Here, a business liability insurance will come to the rescue and cover the cost of the claim.
The Effect of Insurance on Business Performance
To understand how insurance affects the performance of a business, have a look at the reasons explaining the importance of insurance:
Safety and Security
Insurance offers financial support to a business and reduces uncertainties. It offers safety and security against an event. Whether it’s business or human life, there is always a fear of loss and insurance offers coverage against that loss. Let’s say some natural event such as fire causes property damage, you won’t have to use the business funds for the repair. The insurance will take care of all the expenses.
Worker’s Compensation
This compensation is part of the business insurance plant. It offers financial support to employees who can’t work because of an illness or a job-related injury. For instance, if an employee gets injured lifting a heavy piece of equipment, this insurance will cover their medical expenses.
Factors Affecting How Much Business Insurance You Will Pay
Ready to take the plunge and buy insurance for your business? Before you head out to search for the right plan for yourself, it’s important to know how much it will cost to buy the insurance. This normally depends on certain factors which include:
What do you sell?
The type of business you run determines how much insurance you will pay. If the risk is higher, this means you will have to pay more. This risk mostly includes insurance liability.
Location
There is a higher risk for damage in flood or wildfire zones. That’s why the insurance premium is higher. Of course, certain steps can be taken to reduce the risk of property damage from natural disasters. Nevertheless, if you are a business that is located in a high hazard area, then your insurance premium will be high.
Do you own a building or run a business in a rented space? If you rent a restaurant, then you are paying more property insurance premium than if running a real estate business from a rented space.
Previous history claims
When buying insurance, the insurance company will look at your past claim history in case you have one. For instance, if you have been sued for mistakes you have made in providing services several times, then this gives the impression that it’s a trend. The insurer will hence charge a higher premium.
Is Business Insurance Mandatory?
This thought must have crossed your mind is business insurance required? A simple answer to this question is no. However, it is ideal to have the business insured because paying for the expense out of pocket is always an additional expense. There are several types of business insurance available to business owners for different situations.
There are certain amounts of insurances that must be held for employees operating under business. This insurance is necessary depending on the state you are operating in. Most states do require their business owner to have worker’s compensation as well as unemployment insurance. You might also need disability insurance depending on where your business operates.
Summing Up
Insurance is a form of the risk management. It acts as a shield against the risk of potential financial loss. It has been useful to a business society because it reduces uncertainty, improves business efficiency, takes care of employee welfare, and encourages business continuation. It always affects the performance of a business hence it’s a must-have.
