Insurance For Small Businesses: What Should Be Covered?
Small to medium enterprises continue to play a crucial role in the South African economy, accounting for a contribution to GDP of 52% to 57% and 60% for employment.
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Considering the challenging economic conditions they have faced over the last couple of years, this figure is a testimony to the determination of our nation's entrepreneurs.
With the majority of South Africa's small businesses operating in the agricultural trade-, tourism- and construction industries[ii], business owners face a substantial amount of risk, as businesses in these sectors require a hands-on approach.
It's important to insure your small business against those rainy days where disaster strikes. In addition to insuring the business's physical assets, however, business owners also need to remember that they themselves are their businesses' most important assets and should be covered too. That's where life insurance comes in, in the form of contingent liability insurance for major debts, cover for buy-and-sell agreements and key man insurance.
However, the affordability of cover could be a stumbling block for many business owners.
According to Schalk Malan, executive director at BrightRock, traditional business assurance policies are structured in the same form as personal life insurance policies.
"There tends to be a single capitalised block of cover for all needs, and this cover is priced for the maximum term. This cover structure is not necessarily in the best interest of the small business owner, because the cover increases as your needs decrease – leading to cost inefficiency in the way premiums are structured."
This is why BrightRock decided to follow a more flexible approach, which allows an upfront premium savings of 30% on average, allowing business owners to invest more funds in their businesses, or allocate the savings to more cover in the event of underinsurance.
"By structuring business owners' cover to meet their exact needs, BrightRock removes premium waste and saves money from the payment of their first premiums. BrightRock's unique approach allows advisers to tailor business owners' cover over time to match the profile of their needs."
In addition to this, business owners have the unique ability to convert up to R10 million of their cover to personal cover at a later stage – without the requirement of medical underwriting.
"Standard BrightRock policies automatically include the ability for you to redirect your premiums to cover your personal needs if your business cover needs reduce or end. This is done free of underwriting, giving you the benefit of the underwriting you initially underwent and premiums you have paid thus far."
But what to do in the event where the business' growth exceeds expectations, leaving the business owner with a desire to increase his cover?
Not a problem for BrightRock policyholders, says Malan. "Standard BrightRock policies automatically have access to an extra cover account, to access later in the business lifetime, also with no medical underwriting."
What short-term risks should be covered for your small business?
- Fire, explosion and earthquake
- Acts of nature (wind, thunder, lightning, storm, hail, flood and snow)
- Damage caused by bursting and overflowing geysers and water pipes
- Malicious damage
- Power surges
- Fire brigade charges
- Vehicles or fleets
- Employer's liability
- Business interruption
- Stock and money
- Employee dishonesty
- Public liability.
Long term insurance for a small business: What should be covered?
|Contingent liability insurance for major debts||Long term insurance for buy and sell agreements||Key man insurance|
|Contingent liabilities are liabilities that may be incurred by an entity (like a small business) depending on the outcome of an uncertain future event – such as the inability to honour a major debt due to a serious illness, debilitating injury or death.||This will ensure that co-owners of the business can continue to operate the business with as little disruption as possible in the event of the death of the business owner. It also ensures that the estate of the deceased business owner receives fair value for his or her business interest, as well as the settlement of his credit loan account.||An insurance policy taken out by a business to compensate the particular business for financial losses that would arise from the death or extended incapacity of an important member of the business.|
[ii] "Small business in South Africa" (http://www.southafricaweb.co.za/page/small-business-south-africa)