Importance of business insurance

21 Jan, 2022 - 00:01 0 Views
Importance of business insurance

eBusiness Weekly

Dr Keen Mhlanga

Doing business is exposed to numerous risks that threaten property, life and health of employees as well as business continuity. Recently businesses are more exposed to uncertainty and risks such as pandemics, terrorism, natural disasters, software viruses, and others.

It is, however, important for companies to have business insurance because the potential risks involved of not insuring the business could result in financial losses for the company. Insurance provides financial compensation for people or organisations, the insured, who have suffered financial losses due to calamities. Insurance is provided by the pooling of money by a company from a group of people or organisations, to pay for the fortuitous losses that any of them may suffer.

The money people pay to the insurance company is called the premium, and for this premium, the company promises to indemnify any of its customers for covered losses or to pay a specific amount for an insured event, such as the payment of property insurance or fraud insurance.

Business insurance refers broadly to a class of insurance coverage intended for purchase by businesses rather than individuals. Business insurance coverage protects businesses from losses due to events that may occur during the normal course of business. It is a form of risk management primarily used to hedge against the risk of potential financial loss.

Companies evaluate their insurance needs based on potential risks, which can vary depending on the type of environment in which the company operates. Risk insurance provides a level of financial compensation in the event of a loss. Insurers only pay the compensation if the loss is insured by a valid policy.

There are different types of business insurance which include property insurance, professional liability insurance, vehicle insurance, product liability insurance and business interruption insurance.

Property insurance covers equipment, signage, inventory, and furniture in the event of fire, storm or theft. However it does not cover mass-destruction events like floods and earthquakes. If your area is at risk for these issues, you will need a separate policy.

Another exception is personal property that is very high value and expensive. Professional liability insurance insures against negligence claims that result from mistakes or failure to perform. There is no one-size-fits-all professional liability coverage. Each industry has its own unique concerns that should be addressed. vehicle insurance insures any vehicle used for business. At the very least, business should insure against third-party injury, but comprehensive insurance will cover the vehicle in an accident, as well. If employees are using their own cars for business, their own personal insurance will cover them in the event of an accident.

One major exception if a person is delivering goods or services for a fee, including delivery personnel. Business interruption insurance compensates a business for its lost income during events that cause a disruption to normal course of business. Product liability covers any business, for example, if your business manufactures products to sell, if the business happens to be found in a lawsuit due to damages caused by its products, product liability protects such a business.

In the world of business, commerce, and industry a huge number of properties are employed. With a slight slackness or negligence, the property may be turned into ashes. The accident may not be fatal not only to the individual or property but to the third party.

New construction and new establishment are possible only with the help of insurance, in absence of it, uncertainty will be to the maximum level nobody would like to invest a huge amount in the business or industry.

With the help of insurance business losses or uncertainties are reduced. It gives a sense of security and safety to the company or businessman. It enables them to receive compensation against actual loss. A company is able to concentrate on their business with a certainty and a secure feeling that in the case of losses arising from insurable risk, its losses will be compensated.

With insurance, a business can obtain a loan by pledging the policy as collateral for the loan. Companies that are insured are getting more loans due to the certainty of payment at their death. The amount of loan that can be obtained with such a pledging of policy, with interest, thereon will not exceed the cash value of the policy. In the case of death, this value can be utilised for setting the loan along with the interest. If the borrower is unwilling to repay the interest, the lender can surrender the policy and get the amount of loan and interest thereon paid. The redeemable debentures can be issued on the collateral of capital redemption policies. The insured properties are the best collateral and adequate loans are granted by the lender.

Interruptions in business can be caused by different reasons some of them are predicted and some are not. Although the probability of any individual adverse event may be small, the overall effect on the business can be huge.

Continuity of business is not an ad hoc activity but a continuous process of planning where risk management plays a key role. Integrated risk management in the context of achieving business continuity involves three elements which are risk avoidance, with the primary objective of limiting the probability of the adverse event and its size, risk transfer with the main objective to mitigate risk of an adverse event through risk transfer to third parties or through insurance and preparedness with the main objective to normalize the business, as it was before the adverse event.

In modern business conditions companies have the ability to identify risks, to assess their potential effects and, on the basis of the assessment results, to take proper action, such as transfer, prevention and reduction, avoidance or risk retention and this is possibly achieved through insurance. In any particularly partnership business may discontinue at the death of any partner although the surviving partner can restart the business, in both the cases the business and died partners will suffer economically.

The insurance policies provide adequate funds at the time of death. Each partner may be insured fort the amount of his interest in the partnership and his dependants may get that amount at the death of the partner. With the help of property insurance, the business is protected against disasters and the chance of disclosure of the business due to the tremendous waste or loss.

The welfare of employees is the responsibility of the employer. The former is working for the latter. Therefore, the latter has to look after the welfare of the former which can be provided for early death, provision for disability and provision for old age. These requirements are easily met by the life insurance, accident and sickness benefit, pensions which are generally provide by group insurance. The premium for group insurance is generally paid for by the employer.

This plan is the cheapest form of insurance for employers to fulfil their responsibilities. The employees will devote their maximum capacities to complete their jobs when they are assured of the above benefits. The struggle and strife between can be minimised with the help of such schemes of insurance and ultimately increases the efficiency in the company.

In Zimbabwe, The Securities and Exchange Commission, in terms of the Securities and Exchange Act (Chapter 24: 25), Section 68-86 granted a provisional licence to Chengetedzai Depository Company, to operate a Central Securities Depository in May 2014. A Central Security Depository is simply a computerised system that maintains an electronic register of securities as shares, instead of paper-share certificates.

The system immobilises and dematerialises physical certificates so that they exist only as electronic thereby eliminating the risks associated with handling physical scrip. Investors move from holding paper certificates as part of proof of owning shares in a company to keeping them through electronic records.

It provides securities accounts, central safekeeping services and asset services, which may include the administration of corporate actions and redemptions, and plays an important role in helping to ensure the integrity of securities issues (that is, to ensure that securities are not accidentally or fraudulently created or destroyed or their details changed).

 Founder and chairman of FinKing Financial Advisory. He can be contacted on [email protected]; +263719516766.

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