As promised, this section is about insurance. Regrettably, this is a boring topic, a very important topic but awards in the millions. Let’s start with one single understanding about insurance – every form of insurance has one purpose – to protect you from a large financial impact or loss. This is accomplished by taking that potential risk and spreading it over millions of people.
Insurance companies, using statistical projections, figure out how many potential lawsuits there will be and the potential average reward on those lawsuits and then spread that out to everyone that has insurance. Every policyholder pays a premium for the coverage and that money is put into a big pool so the lawsuits can be handled.
Of course, there is not just one big kind of insurance that covers everything, that would be complicated and confusing, so instead there are lots and lots of insurance types. The goal here is to identify many of the insurance types and discuss each type and what is special and different about it.
Most individuals, staying away from businesses, will deal with a limited number of insurance types, but each one is different. Businesses have their own types of insurance where the concepts of coverage and risk are similar but the rules are different. Here’s the thing, if there is not risk of loss, then there is no need for insurance. There is, when checked, no insurance for getting a bad grade on a test while in school since the risk is mitigated by the studying so the risk is in the control of the person: study and get good grades, it is called school for a reason.
Let’s consider the various types of insurance: each type will have its own topic page so that you don’t confuse one with another. The goal is to allow the reader to identify the topic desired. If specific questions are not answered, please send an email to firstname.lastname@example.org.
- Auto Insurance
- Life Insurance
- Health Insurance
- Home Owner insurance / General Liability
- Renter’s Insurance / General Liability
- Long Term Disability
Yes, there are others but often these are minimal in application as they relate to the individual and there are others that relate to business applications, let’s just generally discuss these and you can skip this section if desired.
Depending on the type of business, there are hundreds of types of insurance that may be available but there are three big groups (the other smaller groups are skipped):
- Professional Service Malpractice
- Protection of assets
o Workers Compensation.
Liability insurance is simple enough, it is intended to protect you from someone else suing your company for almost anything that is a result of your workers or an accident to someone else while visiting an area your crew is working. Yes, this is rather general but think of it as a big umbrella protecting from rain, sleet, hail, snow or direct sunlight. If your employee damages the property of another company, that is a liability issue. If someone is walking by the worksite and gets hit with a piece of flying wood, that is a liability issue. If your employee failed to properly secure something and it broke away causing damage or injury, that is a liability issue. Here’s the thing, if it is your employee that is hurt or your equipment that is damaged, then it is not liability unless someone else is at fault. This is the key word: ‘fault’.
If your employee is hurt on the job then that would be part of the ‘protection of assets’ group because employees are assets of the company, while they are on the clock and are covered under ‘workers compensation’. This is one of the reasons that a business must provide hard hats to employees in a construction area. Protection of assets also includes the equipment in the trucks and the tools stored in the office, the office itself and any assets you are temporarily holding for someone else. Assume that someone breaks in and steals all of your tools, your insurance would cover the cost to replace the tools.
Lastly, but a big time insurance in many areas, is coverage for professional services. This is generally referred to as malpractice insurance and has made a big name in the medical arena. If a doctor ever does anything that is not to the pleasure of the patient, there is an opportunity for a malpractice lawsuit and the worst part is that nothing needs to be wrong, someone was displeased.
It is impossible to answer every single question about insurance, but hopefully, this brief discussion has provided helpful information. If you want to start a business, you must research these topics. Consider opening a restaurant that sells lemonade. You need insurance for all of the supplies (lemons, sugar, paper cups), the tools (knives, squeezers, pitchers) and the furnishings of the space, even if it is rented (asset protection insurance). Next, you need insurance for the employees in case someone cuts themselves with a knife and needs to go to the doctor (workers compensation). Liability insurance is needed if someone drinks some lemonade and a seed got through causing the customer to choke. Lastly, malpractice insurance is needed if someone accuses you of stealing their recipe. Did you notice, there is no insurance in case you don’t make any sales and lose money? It all comes back to what is in your control and whose fault was it. Bad lemonade is under your control.