Small business insurance – do you need it?

Several years ago, Steve and Brian started a small web-design business, GotyaOnline. Steve was responsible for growing and supporting their client base, while Brian designed and built the websites.

Expanding to include maintenance of client databases and online shopping facilities, they bought new technical equipment and rented office space.

Recognising the importance of insurance, they sought professional advice about suitable cover for a small business like GotyaOnline.

Uppermost in their minds were the kinds of loss they needed to insure against, such as:

  • Property/equipment damage or loss
  • Key personnel
  • Cyberattack and ransomware

Any of these events could potentially lead to business interruption, security breaches and reputational damage, all of which may expose GotyaOnline to legal action.

With assistance from their planner, Steve and Brian conducted a business risk analysis and considered the following insurances:

Property and assets cover

GotyaOnline owned state-of-the-art equipment to manage its clients’ online operations. Property and assets cover would insure against equipment damage or loss resulting from fire, flood, theft, etc., the kinds of events that could potentially lead to business interruption and GotyaOnline being unable to fulfil business commitments.

Revenue insurance

This cover helps support a business experiencing loss of revenue or profits resulting from an event causing computer failure or business interruption. Cover is in the form of compensation to help keep the business operating during prescribed hard times.

Key person insurance

Steve and Brian are both integral to GotyaOnline’s operations and client account management. If either was unable to work due to illness or injury, the business could suffer considerably. Key person insurance provides financial support enabling the business to engage suitably qualified people and systems to minimise the impact to GotyaOnline and its clients.

Professional indemnity

This protects Steve and Brian against liability for damages, occurring in the course of their business, and the costs associated with defending legal claims brought against them by clients.

Shareholder insurance

This specific type of life cover protects shareholders if something were to happen to one of them. It provides a lump-sum payment enabling the surviving shareholder to purchase the other’s shares, at a previously agreed price.

It offers surety for an effective business succession plan if one of the partners was suddenly out-of-the-picture through death or disability.

Cyber insurance

This covers a business’s liability if subject to a data breach involving sensitive customer information, names, addresses, credit card details, etc.

With more businesses storing data ‘in the cloud’ and functioning online, this form of insurance is increasingly relevant.

Steve and Brian’s adviser assisted them in understanding their risks and developing a contingency plan that included an insurance portfolio tailored to GotyaOnline’s specific requirements.

When a neighbourhood power surge knocked out GotyaOnline’s systems, it caused physical computer damage and disabled web connectivity. Besides GotyaOnline being offline, its clients couldn’t access customer databases, potentially exposing GotyaOnline to legal and reputational damage.

GotyaOnline’s insurance provided financial support to quickly restore the business’s online connectivity and replace damaged equipment. Within 24 hours, GotyaOnline was returned to operation with minimal interruption to the business or its clients.

Every small business is different and no one solution covers all. If you’re uncertain about insurance, speak to a qualified financial advisor. They can point you in the right direction regarding the most appropriate cover for your business needs.

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General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

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