Knowing that your insurance company will be there for you when the unexpected or the expected occurs can provide tremendous peace of mind. Consider the possibility that you have failed to report commercial operations or have failed to keep your insurance information up to date. This can leave your company vulnerable to large financial losses, regardless of whether you win or lose the case.
Here are five reasons why you should be transparent about your business actions.
To make certain you’re protected
Just because you have company insurance coverage does not guarantee that your policy will automatically cover you for anything that could happen to you. An attitude of “she’ll be right” can have a big financial impact on your business, and it might cause it to expand more slowly or even stop it from growing altogether.
It is a prudent investment to make your business activity public.
Insurance is just as good as the information you supply to the insurance company. As a result, the more commercial tasks you forego in order to conserve money, the more risky your company’s future becomes.
While the cost of premiums may appear to be prohibitively expensive, it is insignificant when compared to the expense of any legal defence expenditures and financial penalties you may be subjected to.
In today’s litigious atmosphere, no business partnership can be considered risk-free of consequence. Employees, suppliers, investors, competitors, consumers, government agencies, regulators, and creditors are all potential sources of unexpected issues for your company.
To create an accurate risk profile
Based on the information you supply, your insurer will develop a risk profile for your company. A risk profile takes into account your industry, occupation, location, length of time you’ve been in company, claims history, and other factors to determine your risk exposure.
The information they collect is used to decide how they will rank your company for insurance coverage. Whether they can underwrite the risk and compute a proper premium to safeguard your business interests is determined by this process.
To fulfil your disclosure obligation
A duty of disclosure is included in the contract for all insurance contracts. Consider the scenario in which you forget to inform your insurance of your business activity. In that situation, they are within their rights to decline to offer coverage when it comes to claiming time off from work.
It is possible for your insurer to appropriately underwrite your business risks if you accurately declare all company activities and keep your insurer up to date. At the time of the claim, you will be in a better position.
Let’s look at an example.
You decide to run a ticketed music event under your business entity. However, you fail to disclose the event to your insurer. Because you operate a licenced venue, you assume that your existing sole trader insurance will cover the event. During the event, a ticket purchaser trips over a power cord leading to the stage and fractures his arm, resulting in a loss of earnings. An action against the business entity results in the payment of $50,000 in legal defence costs, as well as $700,000 in compensation for personal damage claims.
Conclusion: Because the insurance company was not informed of the event, the claim was denied.
The contract has the force of law behind it.
The fact that an insurance policy is a legally binding contract must be acknowledged by business proprietors. Consequently, you should regard your insurance coverage as you would any other legal arrangement you may have.
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Maintain a complete understanding of all of the terms and circumstances governing your insurance coverage. In order to understand your policy, its limits, and exclusions, you would benefit from consulting with an expert risk and insurance adviser.
Always thoroughly examine your insurance policy to make sure it is appropriate for your company’s requirements and risk profile.