Today’s world is full of uncertainties, and there is no better way to be safe and protect your property and investment than acquiring an insurance policy. In the face of disaster, insurance comes in handy by saving you from incurring unplanned costs. However, having inadequate insurance coverage is almost as risky as not having insurance at all. It means that the insurer will not restore you to your previous position before the occurrence of the unforeseen risk.
For your business, lack of adequate insurance may spell losses or cause you to lose out on lucrative benefits. When obtaining a cover, it is essential to assess the risks and determine the amount of coverage that guarantee to replace the losses at the current market price. Here are some of the problems that your business may face as a result of inadequate insurance coverage.
1- Financial Losses
Unforeseen events such as theft, fire, or even natural calamities like floods can change the course of your company. When such risks occur, the insurer will only compensate you to the extent that the business is covered. For example, if the company’s assets are insured up to $200, 000, and you incur losses worth $350, 000, you will only be compensated for the property that’s worth $200, 000. As a result, the business will suffer massive financial losses as you will be forced to use business finances to cover the uninsured loss.
2- Operational Downtime
Calamities such as theft and property damage can also cause your firm to slow or shut down for some days or even months. Operational downtime can significantly hurt your business and increase the risk of losing customers. This is because every day that your firm is not running increases the risk of your clients moving on to the competitors. You may be forced to inject more resources into promotions and digital market to regain your customers or get new ones.
3- Risk of Lawsuits
General insurance cover is essential for businesses as it pays for injuries sustained to third parties, such as customers, suppliers, and contractors, within the business premises. Most of the third party injury claims made against companies today are due to slip and fall accidents. It is essential for your firm to be adequately insured against this risk. Failure to do so can tangle your business in lawsuits that can taint its reputation and lead to massive losses.
4- Loss of Clients
Businesses today have adopted technological tools that improve and simplify operations. Some of these tools are used for data storage through local and cloud storage solutions. While they make businesses more productive, they also expose them to the risk of data breaches from hackers and other malicious scammers. Data breach insurance protects the business if a client experiences data breaches that can be tied back to your company. However, if you don’t have it, the losses incurred by the client plus the lawsuit can ruin your business relationship.
5- Limited Access to Credit
Banks and other lenders prefer to finance, including in larger volumes, businesses whose entire sale is insured. If an insured risk occurs, the financier is guaranteed that the insurer will cover the total cost of the damage. However, if the business is underinsured, lenders may be skeptical about extending credit to your firm. Those that extend credit may not offer much money due to the risk of losses. For your business to qualify for large loan amounts that can be used for growth, adequate insurance is a necessity.
6- Loss of Tax
Firms are always looking for legal ways to reduce tax liability and make savings. One of the means to achieve this is through obtaining adequate credit insurance. The cover protects the business against bad debts. Credit insurance enables the company to decrease provision for doubtful debts, and this is reflected in tax benefits as insurance premiums are tax recognized costs. Inadequate or lack of credit insurance deprives the business of reduced tax benefits.
7- Reduced Operational Funds
It is critical for every firm to set aside finances for emergencies and unforeseen circumstances. However, if you have adequate insurance, there is no need to put away a lot of money for emergencies as the insurance company has got your business covered. On the other hand, inadequate coverage can cause you to overcompensate by setting aside huge amounts of money. An emergency fund can reduce the sum of money available to run operations and expand the business.
Adequate insurance is a basic requirement for any business that seeks to experience continuous growth, preserve its customers, and maintain its reputation. You can work with an agent to determine the proper policy that will adequately cover the company against unexpected circumstances.