The high rate of fire outbreaks, building collapse, robberies, inflations, etc., has further raised the question of insurance of businesses, to defray the incidences of loss in case the unexpected, suddenly happens.
A business that is uninsured, or under-secured, is at the risk of going into extinction if a disaster occurs.
Many small business owners merely insure for a short-term, if at all they insure their businesses at all, believing that they are adequately protected against unforeseen events, which is a very wrong notion.
The only advantage of short-term insurance is if it covers the full replacement of the business insured because a short-term policy will pay out the sum insured.
Below are, stated, some reasons why, under-insured businesses, or, un-insured ones, are at the high risk of going into extinction.
Catastrophic occurrences are those events, that cannot be controlled by man, such, as fire accidents, building collapse, etc., which could result in monumental loss of equipment, materials, goods, which could threaten the survival of the business, if the assets of such business are not properly insured.
These occurrences, in fact, also threaten the lives of people that are in its path. The owner is at the losing end of it all, if the business goods, equipment, etc., are not covered for their full replacement value.
Failure to deliver goods and services, following a loss, the business faces the risk of customers or clients taking legal action against it.
An uninsured or an under-insured business would not be able to, readily, cover up for their losses, due to a shortage of funds.
The business also stands the risk of losing clients and customers to other competitors.
If a business is uninsured, or, is under-insured, the short term policy pays out only the sum insured, as stated in the schedule. This often leads to cash flow challenges, or, rendering it difficult for the business to recover, following the financial loss because, the business owner is saddled with the responsibility of providing for the shortfall.
A business owner may, even, have adequate insurance for the replacement of property, but may not put into consideration, liability insurance.
This means that, if a property is damaged, the business cannot operate, like a normal company, while the property is being replaced or repaired. If a liability claim is made and there is no liability insurance, then, the business could face a significant loss, if the claim against such business is successful.
A business that is under-insured faces the same risk as an un-insured business. When there is a loss and the business owner is assured that the business is covered but finds out when there is a loss, that it is not, he gets disappointed and that might be the end of the business, therefore, half insurance is no insurance at all.