When you buy insurance, you’re buying a promise that if something catastrophic happens to your business your carrier is going to assist you to make your business whole again.
Sometimes, though, it’s tempting to question the value of insurance because it is an intangible product. Let’s back up and take a big-picture view of why insurance matters. Here are seven reasons why insurance is important.
1.) Insurance Protects the Small Guys
When you look at your industry, you see the “big guys” and the “small guys.” If a risk goes wrong, the big guys will be able to survive. They can take a hit. But the little guys can’t take a hit. As a result, they are more risk averse, and in some cases, they sell out to the big guys. If enough little guys leave the industry (and one big guy swallows them up), you’re left with a monopoly. With insurance, however, the little guys have support if they want to take a risk, which means they stick around longer. What it comes down to is that insurance helps prevent monopolies from forming.
2. Insurance Ensures Family and Business Stability
Insurance is a safety net for when risks go wrong. Life insurance can support the life of a family, should a member be lost. It’s similar for a business. Should a key member or piece of equipment go out of commission, the business can carry on, thanks to insurance. This reason why insurance is important dovetails nicely with peace of mind. It all goes back to the idea that insurance, when activated, makes policyholders whole again.
3. Insurance Grants Peace of Mind
Insurance, an intangible, provides another intangible: peace of mind. Business owners can take on certain business ventures because they can shift the risk — thanks to insurance. This reason is the counterpart to — lenders require insurance. Insurance is the required safety net (by lenders) that lets entrepreneurs explore opportunity.
4. Lenders Require Insurance
Mortgage lenders want proof of insurance before you buy or build a new building. In short, to get the money your business needs to keep going, it’s likely you enjoy the benefits of insurance. Without insurance, your winning business model can’t get the funding it needs to take its first step, or your established business model can’t get the funding to evolve and better compete.
5. Insurance is the Right Thing to Do
A sobering example of insurance in action was the West Fertilizer Co. explosion in Texas. The explosion did $100 million in damage to the community, including schools and hospitals. The fertilizer company had only $1 million in general liability coverage. The city sued West Fertilizer and are likely to win all of the company’s remaining property and assets that were not damaged by the disaster. This is because the fertilizer company did not have enough insurance. What’s more is the city also sued the suppliers to the fertilizer plant, claiming they knew they were supplying inherently dangerous materials.
In the case of the West, Texas, plant explosion, insurance could have helped a community to recover after a crisis.
Insurance is something many business owners don’t want to think about. But whether they think about insurance, with hope it’s there, allowing for transfer of risk and providing a safety net for new opportunities.