Understanding Business Insurance: A Plain-English Guide

Business insurance is a broad term. It usually refers to a group of policies that help protect a business against financial loss from things like property damage, legal liability, theft and interrupted trading. There is no single policy that suits every business, and the right mix depends on what you do and how you do it.

This guide explains the main types of cover in plain terms, how policies are generally put together and a few things worth checking before you buy or renew.

What business insurance is designed to do

At its simplest, insurance transfers some of the financial risk of an unexpected event from your business to an insurer, in exchange for a premium. If an insured event happens, the policy may pay for repairs, replacement, legal costs or compensation, subject to its terms, conditions, exclusions and limits.

Insurance does not prevent things going wrong, and it will not respond to every loss. It is one part of managing risk, alongside sound processes, regular maintenance, clear contracts and good record keeping.

Common types of business cover

Many small and medium businesses start with a business package policy. A package combines several sections under one policy, and you can usually choose which sections to include.

Property and contents

This section may cover buildings, fit-out, stock and equipment against events such as fire, storm, impact and theft, depending on the policy. Some events, such as flood, may be optional or excluded, so it pays to read how each event is defined.

Business interruption

If insured damage forces you to close or slow down, business interruption cover may help with lost gross profit and some ongoing expenses for a set period. It generally only responds when the interruption follows damage that is covered under the property section.

Liability

Public and products liability is designed to respond to claims that your business caused injury to someone or damage to their property. Professional indemnity relates to claims arising from advice or services you provide. Management liability looks at certain risks faced by the business and its directors and officers.

Other areas

Depending on your operations, you might also consider:

• Commercial motor cover for vehicles used in the business
• Cyber insurance for data breaches and attacks on your systems
• Portable equipment or tools cover for items taken off site
• Machinery breakdown cover for plant and equipment
• Glass, money and theft sections within a package

Workers compensation is compulsory for employers in each state and territory. It operates under its own state-based rules and is generally arranged separately from the private business policies above.

How a policy is put together

Most policies follow a similar structure. Understanding it makes the wording much easier to read.

• Schedule: the details specific to you, such as the sums insured, excesses and the sections you have chosen
• Definitions: the meaning of key words, which can change how a section applies
• Insuring clauses: what the policy may pay for
• Exclusions: what the policy will not cover
• Conditions: what you need to do, such as notifying claims promptly or keeping premises secured
• Endorsements: changes to the standard wording that apply to your policy

The Product Disclosure Statement (PDS) and policy wording sit alongside the schedule. Reading them together gives you the full picture of what is and is not covered.

Things to think about before you buy

Sums insured

Setting sums insured too low can leave a gap. Many property policies include an average or co-insurance clause, which may reduce a claim if you are underinsured. Reviewing values each year, and allowing for rebuilding costs, professional fees and debris removal, can help.

Your duty of disclosure

For business insurance, you generally have a duty of disclosure. This means telling the insurer anything you know, or that a reasonable person in your circumstances could be expected to know, is relevant to their decision to insure you and on what terms. Not doing so may affect a claim or the policy itself.

Contracts and leases

Leases, supply agreements and client contracts often require particular types and levels of insurance. Check those requirements against what you hold, as a contract may ask for cover your current policy does not provide.

Getting help with your cover

Business insurance can be hard to compare, because two policies with similar names may respond quite differently. A broker can help you identify your main risks, explain the wording and approach insurers on your behalf.

If you would like to talk through your current arrangements, the team at Tasman Insurance Group is happy to explain your options in plain language.

This article is general information only and does not take into account your objectives, financial situation or needs. Before making a decision about insurance, read the relevant Product Disclosure Statement and policy wording, and speak with a licensed adviser about your circumstances.