Small Business Insurance Policies - Paper Example

Insurance is a contract in the form of a policy that allows an insurance company to give a financial reimbursement or protection against losses to an entity or individual. Insurance policies hedge clients' businesses against the risk of financial losses that may occur from damage to the insured or its property or from liabilities for injury or damages caused to third party institutions or individuals (Smeltzer, 2008). The insurance company pool client’s risks to pay the insured in case of a loss (Smeltzer, 2008). A business pays a premium on a periodical basis to the insurance company as a fee for protection against particular risks within a stipulated period. Insurance plays a critical role in protecting small businesses against unforeseen risks.

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Small businesses need different types of insurance policies and coverage. Although there are many types of insurance company policies and coverage to small businesses, the most important policies are; general liability coverage, commercial auto coverage, and workers' compensation coverage. General liability insurance protects businesses from claims of property damage or bodily injury caused to other entities or individuals, thus covering slander and libel (Yu et al., 2018). Commercial auto policy cover accidents caused by business vehicles when the drivers are at-fault. Worker's compensation insurance benefits employees in case of work-related illness or injury (Yu et al., 2018). Other types of insurance policies and coverage relevant for small businesses include commercial property policy, professional liability coverage, data breach policy, and business income insurance.

The appropriate limits, exclusions, premiums, and deductibles for small business vary depending on the company's size and the type of insurance policy. For example, in the case of commercial auto coverage, premium differ depending on the liability limit selected motor vehicle report of the driver, and the type of vehicle insured. On average, the premium for commercial auto policy ranges from $1000 to $1900 (Smeltzer, 2008). The common limits and deductible when the driver has clean driving records are $1 million and $500 deductible, respectively (Smeltzer, 2008). Commercial auto policies' common exclusions include damages because of racing, war, intended injury, and claims for pollution caused by the vehicle.

Small companies in business expose themselves to a varied amount of risk the moment they become operational. Some of these risks include data breach, property damage, human capital costs, and professional service mistake, among others. The negative financial impacts of these risks may be too high for the company to continue its operation (Smeltzer, 2008). For example, suppose a business premises catches fire. In that case, the cost of renovating the building and stocking the business may be too high that the company may decide to shut its operations. However, if the business premises were insured against fire, the insurance company will provide the necessary finances required to restore the business its initial status (Smeltzer, 2008). Besides, suppose a company causes major damage to another third party's property, and the claim is too high. In that case, the insurance company will pay the claim, thus ensuring that its client has sufficient capital to continue its operation. Insurance policies, however, several limitations (Smeltzer, 2008). The main limitation of using insurance to mitigate risk is a long time to provide financial reimbursement. The insurance companies are always reluctant to meet the risks. In some cases, if the negligence is the cause of the damage, the insurance company may refuse to pay the damage. As a result, the company may not resume operation as soon as possible.

Small business use insurance policies to mitigate different risks. Generally, all insurable risks are categorized into property risk, personal risk, and the liability risk (Romanosky et al., 2019). Personal risks are those risks that can affect an individual's safety or health, including illnesses and accidents. Examples of personal risks include safety risks, health risks, life insurance, and accident risks. Property risks are those that cause total or partial loss to property, such as fire, theft, or natural calamities (Romanosky et al., 2019). Lastly, liability risks are risks associated with being liable to a third party because of the willful or negligent act that causes loss to other people or their properties. Examples of such risks include damages caused by a company's vehicle to a third party.

The annual cost of insurance policies varies from one policy to another, from one insurer to another, and from one country to another. For example, in the United States, the average cost of commercial auto cover is $1,555, while in Kenya, it is $100 (Romanosky et al., 2019). In the U.S, Allstate, Farmers, Geico, Allied, and Progressive insurance companies offer commercial auto cover at $1,896, $1540, $1260, $1533, and $1910, respectively (Romanosky et al., 2019). Other insurance covers, such as fire policy, vary depending on the building's value and the value of properties stored in the same building. The value of a building and the cost of fire insurance premium include its construction materials, fire protection measures, location, occupancy, and exposure.

There are various sources of insurance policies across the world. Some insurance providers operate within a locality while others are international. Besides, some specialize in covering specific risks, while others cover a wide range of risks (Müller & Te, 2017). Examples of some of the most common sources of insurance policies globally include Berkshire Hathaway, Ping An Insurance, AXA SA, Allianz SE, and AVIVA PLC. For a small gym business, gym liability insurance is the most appropriate in mitigating the owners against gym-related risks (Wang et al., 2020). Gym liability insurance covers liabilities such as general liability, professional liability, product liability, employee practice liability, and property coverage. The average cost of Gym liability cover is $1600 per annum (Wang et al., 2020).

It is evident from the discussion above that insurance plays a critical role in helping business organizations mitigate risks. Small businesses can select the best types of insurance policies depending on the nature of their operations. Several sources of insurance policies offer different packages to mitigate various risks. Gym liability insurance is the best package for a small gym business.

Reference

Müller, D., & Te, Y. F. (2017, December). Insurance premium optimization using motor insurance policies—A business growth classification approach. In 2017 IEEE International Conference on Big Data (Big Data) (pp. 4154-4158). IEEE. https://ieeexplore.ieee.org/abstract/document/8258437/

Romanosky, S., Ablon, L., Kuehn, A., & Jones, T. (2019). Content analysis of cyber insurance policies: how do carriers price cyber risk?. Journal of Cybersecurity, 5(1), tyz002. https://academic.oup.com/cybersecurity/article-abstract/5/1/tyz002/5366419

Smeltzer, N. (2008). Freedom to Contract in texas-enforceability of an As Is a clause in a commercial leased: Gym-NI playgrounds, Inc. v. Snider. SMUL, Rev., 61, 509. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/smulr61&section=28

Wang, Y., Sun, J., & Chang, C. P. (2020). Marketization, competition, and insurance pricing: The comprehensive evidence from China. Emerging Markets Finance and Trade, 3(1), 1-20. https://www.tandfonline.com/doi/abs/10.1080/1540496X.2020.1771304

Yu, W., Huang, Y., & Cui, C. (2018). The absolute ruin insurance risk model with a threshold dividend strategy. Symmetry, 10(9), 377. https://www.mdpi.com/2073-8994/10/9/377