Shield for the small biz

Suitable insurance policies can help small players manage risks cost-effectively

There are more people today who are self-employed, professionals, or have set up a small business. Such people face considerable risk — a natural calamity or legal case can bring their work to a halt. Most small businesses are unaware that insurance can help them manage risks cost-effectively.

What risks do small businesses face? For an independent professional, litigation is a major one. The extent of litigation has increased substantially, and the cost of hiring a good lawyer is prohibitive. Doctors, architects, consultants, lawyers and other professionals face litigation often. Cases are filed by unhappy clients, and the grounds, most often, are negligence or deficient services.

A small group of about 3,000 doctors that we have insured face over 15 legal cases a year. Fighting a case is time-consuming and expensive. ‘Professional indemnity’ insurance mitigates this risk by paying for your defence costs and final settlement. Many insurers provide a panel of lawyers who can help you; some take on the responsibility of litigation.

A professional indemnity policy with a sum assured of ₹1 crore costs less than ₹10,000 a year.

As you grow in terms of employees, a ‘directors and officers’ liability’ policy becomes relevant. This kind of insurance pays for legal costs if there is litigation against any senior executive or director of the company.

Manufacturing units can be damaged by fire, earthquakes, storms or vandalism. Factories are the most expensive asset for companies, and such damage is not only expensive to repair but also results in loss of business when the plant is shut down. This risk can be insured through property insurance.

It is possible to pick perils that are relevant to your business and insure just those. Such kinds of insurance cost about ₹2 lakh per year for assets worth ₹10 crore.

For instance, it is possible to insure your machinery against breakdown costs through ‘machinery breakdown’ insurance and to get an extension, called ‘fire loss of profit’, for the loss of profit that a business suffers when a plant is shut.

Goods moved physically from one place to another through any mode of transit can be insured against damage. Called ‘marine’ insurance, it costs just a few thousand rupees per shipment. ‘Workman compensation’ insurance also costs a few thousand rupees and will pay for costs awarded by courts if a worker is hurt at work.

‘Keyman’ hedging

Small businesses depend upon a few people to be run effectively. If such a key person were to die, the business would come to a standstill. This risk can be partially addressed through ‘keyman’ (or woman!) insurance.

Keyman will pay a large amount to the company if a key person dies. This money can be used to hire a replacement and keep the business going. For example, a policy for ₹20 crore for a 40-year-old costs ₹2 lakh for 10 years. The advantage of keyman insurance is that the sum assured can be linked to the financials of the business.

A small business will also need to think about how to retain employees. When a staff member falls ill, there is an implicit responsibility that the company helps out with the costs.

It is common for companies to contribute to such employees. This can be insured through ‘group health’ insurance. Such kinds of insurance are better than individual insurance options because there are no waiting periods or exclusions.

You can also insure your staff against accidents through a ‘group personal accident’ cover. A sum of ₹600 per year will insure your staff for about ₹10 lakh of cover.

The writer is co-founder, SecureNow

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