Starting a new business can be an exciting and liberating time, but it can also attract unwanted risk that could prove costly if not managed effectively. To mitigate some of the risks associated with business operations there are a number of insurances, both optional and mandatory, available to business owners in Australia.
Here are some of the most prominent insurances available to business owners, why they could help save your business and when you are required to take out insurance.
Professional Indemnity Insurance
What is Professional Indemnity Insurance?
Professional Indemnity Insurance protects businesses in the position of providing professional services and/or advice to its clients.
Despite the best care being taken, errors or omissions can occasionally occur, but with Professional Indemnity Insurance the policyholder is covered for claims made against the business by its customers and any third parties that are affected by the mistake made.
What does Professional Indemnity Insurance cover?
Professional indemnity insurance usually covers claims for:
- Breach of contract;
- Breach of duty;
- Breach of consumer law;
- Defamation and slander; and
- Damages for misconduct by employees, including negligence and dishonesty.
Policies may allow for coverage of legal fees and damages, however, activities that will not be covered by Professional Indemnity Insurance includes conduct that is deemed illegal or intentionally negligent, as well as injuries sustained by employees.
Do I need Professional Indemnity Insurance?
It is prudent for any business offering professional services to take out professional indemnity insurance, however, in Australia it is actually mandatory for some professions to be covered by this insurance. These include:
- Medical practitioners;
- Legal practitioners;
- Tax agents;
- Real estate agents;
- Architects; and, in some states
Public Liability Insurance
What is Public Liability Insurance?
Public Liability Insurance protects the policyholder if they become liable to compensate a third party due to personal injury, for damaging their property, or for negligence that occurred during the course of their work.
What does Public Liability Insurance cover?
Public Liability claims typically stem from accidents resulting in damage or injuries to a member of the public or their property. As such, Public Liability Insurance usually covers costs associated with these accidents, including:
- Replacing or repairing goods or property that are lost or damaged;
- Medical and first aid expenses for injured parties; and
- The policyholder’s legal fees if a claim is brought against them.
Public Liability Insurance can extend to employees of the business or those acting in the capacity of an employee at the time of the incident.
Do I need Public Liability Insurance?
In Australia, most businesses are not required to take out Public Liability Insurance, however, any business that interacts with the general public (including clients and suppliers) in the course of its usual business operations should be covered by Public Liability Insurance.
Some typical scenarios where Public Liability Insurance should be taken out include:
- If the business makes and/or sells a product that is sold to the public, including consumables, household goods, clothing and beauty products (and businesses who exhibit at trade shows);
- If the business has members of the general public visiting its premises, such as clients in an office or patrons at a restaurant or bar; and
- If the business carries out its work on their clients’ premises, such as tradespeople or removalists.
Workers Compensation Insurance
What is Workers Compensation Insurance?
Workers Compensation is a type of insurance that provides financial support to employees who are injured during the course of their work. Injuries covered under Workers Compensation are not limited to the physical kind and also include psychological injuries, such as those sustained through exposure to high-stress or traumatising activities or through workplace bullying and harassment.
What does Workers Compensation Insurance cover?
Workers compensation covers a gamut of workplace injuries ranging from minor to severe, and even death. It supports claimants by providing income and payments for a range of expenses, including medical and rehabilitation costs.
If the worker suffers an injury that is deemed permanent and has caused a disability then a lump sum payment may be made. In cases where a work-related death occurs, the payment may be made to family members.
Do I need Workers Compensation Insurance?
Workers Compensation is governed by laws in each state or territory, but in most locations businesses are required to take out Workers Compensation Insurance to cover both themselves and their employees. Some exemptions do apply, including for business owners and sole practitioners, volunteers and independent contractors who would normally be covered by their own employer.
Directors and Officers Liability Insurance
What is Directors and Officers Liability Insurance?
Directors and Officers Liability Insurance is an insurance that is specific to company directors and executive officers. It exists to protect them against personal liability and financial loss in the event wrongful acts are committed (even if they are only allegedly committed) while they are acting as as corporate officers.
What does Directors and Officers Liability Insurance cover?
Directors and Officers Liability Insurance is split across two main areas of coverage, which are referred to as ‘Side A Cover’ and ‘Side B Cover’.
Side A Cover personally protects directors and officers by covering their:
- Legal defence costs;
- Liabilities when damages and compensation have been awarded against them; and
- Any interest and costs associated with damages and compensation awarded against them.
Side B Cover is a reimbursement for indemnities provided by the company for its directors, however, indemnification may not be applicable to every situation, therefore Directors and Officers Liability Insurance is available to cover to protect the personal assets of affected parties.
Do I need Directors and Officers Liability Insurance?
It is not compulsory for directors and officers to be covered by Directors and Officers Liability Insurance although it is advisable. The role of an executive comes with a high level of risk and wrongful acts caused by an executive in their capacity as a director or officer can be devastating to the company, so it is prudent for a director or officer to have Directors and Officers Liability Insurance to ensure their personal finances are not affected in the event their activities inadvertently cause harm to the company (even if the activities are only alleged).
Business Protection Insurance
What is Business Protection Insurance?
Also known as business interruption or loss of profits insurance, this type of insurance protects businesses against losses to income, revenue or profit if an insured event occurs, and allows the business to recommence operations without incurring a significant financial loss.
What does Business Protection Insurance cover?
Business Protection Insurance is usually tailored to meet the needs of the policyholder. As such, it can be used to maintain cash flow to continue meeting expenses such as rent, bills and loan repayments, insurance premiums and the salaries and superannuation of staff.
Do I need Business Protection Insurance?
Business Protection Insurance is entirely voluntary, in the same way that home and contents insurance or travel insurance is. It is usually taken out by business owners who have borrowed funds to start or grow their business. It may seem like an unnecessary cost but if the business is uninsured and has a major financial set back it could be forced to close altogether. Having to close a business prematurely could affect the policyholder’s personal financial situation if their home or other assets were used as security for the business loan.