Insuring the Family Business – A Practical Guide

Insuring the Family Business – A Practical Guide
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Image source: Pixabay via Pexels

Risk is present in every business, whatever the size or the industry in which it operates. What makes a family business different however, is the network of dependents that rely on its success and future viability. Often, the family business represents the entire assets and savings of successive generations. The thought of catastrophes – be they a fire, a burglary or a large compensation claim – are often swept under the rug, both from a financial and an emotional point of view.

However, thinking about potential catastrophe is exactly what every business owner should do, and as a result, the importance of ongoing risk assessment is something that more and more family firms are beginning to recognize.

In my experience both as an insurance broker and member of a family business.

There are four types of insurance plans that are critical to a family business’s well-being:

1. Property Insurance – This will protect against losses in case of a fire, floods, and burglaries among other incidents. It covers: Furniture, fixtures and fittings; products and stock; money; and the building structure itself (if owned).

2. Business Interruption Insurance – In case damage occurs and you are unable to continue operations, this policy is activated to compensate for future loss of profit/earnings. It will either provide compensation for rent or provide an alternative location.

3. Public Liability Insurance – Often compulsory, this insurance protects against damage to everything you don’t have insurable interest in. An example of this is when a customer is injured or their property damaged on your premises. A more extreme case would be covering for damage to neighboring businesses should a fire or flood originate from your property.

4. Workers’ compensation / employer’s liability – This is also often compulsory, and it provides wage replacement and medical benefits to employees injured in the course of employment. This is in exchange for the mandatory relinquishment of the employee’s right to sue his or her employer for negligence.

I would say the above list represents the bare minimum – indeed, in some cases, businesses can’t legally operate without them.

In addition, there are two other types of insurance I would recommend to family businesses:

5. Keyman Insurance – Especially important for family businesses, this is a type of life cover or critical illness cover against the financial impact of losing a key employee. This can be at times a more cost effective option other than standard life or disability policies as it can be purchased with a “first to die” provision and cover multiple employees. For a family business, where succession planning is often an internal matter, this can be particularly important.

6. Personal Accident Insurance – This is a policy that provides compensation in the event of injuries, disability or death anywhere in the world.

Every business is unique and each sector will require other forms of coverage depending on what they do and where they do it. A professional services firm, such as a legal or accounting practice, might require professional indemnity insurance. A training company that uses specific equipment might require public liability insurance when using special types of equipment.

Healthcare

One type of insurance that is becoming more important is health coverage. This isn’t about protecting your business of course, but it is important to ensure that it operates to its potential. Study after study has revealed that health plans help reduce employee turnover, improve employee morale, reduce sick leaves (by more than 28 percent) and, by extension, increase productivity (by an ROI of up to six times).

If you want to focus on dollar benefits alone, the cost of hiring and training a new employee will far exceed the cost of medical insurance per year. In addition, offering health insurance can help position your business as an employer of choice.

This is merely a starting point. A new risk may pop up at any moment, such as a new contract being won, a new employee getting hired, a new product or service being launched. But by asking “what can go wrong?” with regards to each and every process, and by asking it regularly, those risks can be identified and a value placed against them should the worst happen.

In a family business, the cost will only ever be a tiny fraction of the total value of your organization – and that is what is really at stake.