Insurance requirement for a new business
Oladele Ayeleso, Lagos
Fola Daniel, Commissioner for InsuranceIN life, losses are sometimes unavoidable. On daily
basis, there are stories of ugly incidents that claim
lives. People may become ill and lose income or savings to pay off medical bills. People’s homes or other property may suffer damage or theft. People also may accidentally cause injury to others or damage to the property of others.
Motivational speakers most often counsel their listeners on how to establish their money making business but most often neglect the aspect of its security. Creation of wealth is as good as its protection. No one knows in advance when a loss will occur or how serious that loss will be. The uncertainty surrounding potential losses is known as risk.
Insurance offers a way for people to replace risk with known costs the costs of buying and maintaining insurance policies. Chief (Mrs.) Ajewole, cloth dealer in Oshodi market recently lost all to one of the recent inferno in that popular market. Quantifying her loss, she put the estimated value at N25 million. Owner of shops at the market face the possibility that, they also loose all and remain irreplaceable.
The question is, how could the owners of such businesses budget in advance for a loss of unknown cost? The cost to replace the items in those shops could range from the price of reconstructing the shops, reequipping the shops with items that worth N25 million. If the inferno injures someone, the costs of medical care could be much higher. Through the mechanism of insurance, however, the owner can share the risk of an accident with others who face the same risk.
The reduction in risk brought by insurance relies on a mathematical concept called the law of large numbers. That law states that the ability to predict losses improves with larger groups. Using calculations based on statistics, experts known as actuaries can accurately predict the losses of a large population, even without knowing when or how any one individual will experience loss.
Insurance benefits society by allowing individuals to share the risks faced by many people. But it also serves many other important economic and societal functions. Because insurance is available and affordable, banks can make loans with the assurance that the loan’s collateral such as property that can be taken as payment if a loan goes unpaid, is covered against damage.
This increased availability of credit helps people buy homes and cars. Insurance also provides the capital that communities need to quickly rebuild and recover economically from natural disasters, such as tornadoes or hurricanes. Insurance itself has become a significant economic force in most industrialized countries. Employers buy insurance to cover their employees against work-related injuries and health problems. Businesses also insure their property, including technology used in production, against damage and theft. Because it makes business operations safer, insurance encourages businesses to make economic transactions, which benefits the economies of countries. In addition, millions of people work for insurance companies and related businesses.
Insurance companies perform a type of monetary redistribution—they collect premiums and eventually redistribute that money as payments. Depending on the type of insurance, redistribution can take anywhere from a few months to many decades. Because of this delay between collecting and paying out funds, insurance companies invest their funds to bring in extra revenues. Such investments help businesses and governments finance their operations, and profits from those investments support the operations of insurance companies. With these investment earnings, insurance companies can keep rates much lower than would otherwise be possible.
The first thing needed to be done is find the right mix of liability insurance, workers compensation insurance, and umbrella liability insurance for a fair and reasonable price. For most business owners this is not something they do every day. Many are left feeling confused or intimidated. Here is a little list of some of the more important business insurances you need:
Property insurance - This type of business insurance helps one out in the case of any loss or damage to the location of the business as well as the contents inside. There are even specialized instances of property insurance that insure against specific risks such as fire or flood for example and only protect from that type of loss. It also doesn't matter if the business property is owned, leased or rented.
Liability insurance - Liability insurance protects business in civil legal cases. Most of the time this insurance is used in case of a negligence case due to a business matter or employee. One way to think of liability insurance is to consider it basically negligence insurance.
Commercial auto – it must be stressed commercial auto insurance is not the same as personal one. The commercial only covers vehicles owned and used by the business. Vehicles required to be titled by the state, must have a commercial auto policy. This covers against property damage to vehicles and damage caused to others by those vehicles.
Workers' compensation - As a new business owner one of the first things to learn is the need to get insurance for employees to cover any on the job injuries. This is referred to as worker's compensation insurance. Every state requires a business to have it but each has a different set of rules for what a business needs to cover. This insurance protects the employer from being sued by the employee due to the injury and the employer pays into a system that provides the injured employee an automatic payment to cover medical bills and other expenses while out of work.
