7 reasons why insurance is important.Insurance is tricky. It’s not like purchasing a chair or a shirt or groceries. When you buy insurance, you’re buying a promise. It’s a promise that if something catastrophic happens to your company, your carrier is going to help 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 understanding of why insurance matters. Here are seven reasons why insurance is important. What more would you add?
1.) Insurance Keeps Commerce Moving
In the days after the 9/11 attacks, there were many concerns about insurance coverage. Acts of war are not filled in by insurance. Was terrorism an act of war? The big question was, How would the 9/11 attacks be classified? Fortunately, the insurance industry agreed the attacks were not an act of war.
However, after 9/11, some insurers began excluding terrorism. But the federal government walked in and required coverage in the name of keeping commerce moving. In this case, insurance likely deterred many businesses from averting terrorist-targeted operations, such as refineries and chemical haulers.
2.) Lenders Require Insurance
This reason is tied to No. 1. Lenders expect that you have insurance. Think about it: Mortgage lenders need proof of insurance before you buy or build a new building. In short, to get the cash 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.
3.) Insurance is Compulsory in Some States
Insurance is important because occasionally it’s the law! A great example of this is auto insurance. Auto insurance is mandatory in Wisconsin (home of HNI HQ). Auto insurance helps mitigate the risk of life on the road (of which there are many!). Workers’ compensation is a form of compulsory insurance that’s required in most states.
4.) Insurance Grants Peace of Mind
Insurance, an intangible, gives 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 No. 2 — lenders require insurance. Insurance is the essential (by lenders) safety net that lets entrepreneurs explore opportunity.
5.) Insurance Ensures Family and Business Stability
Insurance is a security net for when risks go wrong. Life insurance can benefit the life of a family, should a member be lost. It’s related 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 crucial dovetails nicely with peace of mind (No. 4). It all goes back to the idea that insurance, when activated, makes policyholders whole again.
6.) Insurance Protects the Small Guys
When you look at your industry, you see the “big boys” and the “small guys.” If a risk goes wrong, the big guys will be able to withstand. 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 implies they stick around longer. What it comes down to is that insurance helps prevent monopolies from forming.
7.) Insurance is the Right Thing to Do
A sobering example of insurance in action is the West Fertilizer Co. explosion in Texas this spring. 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.
Now the city is suing West Fertilizer and likely will 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 is suing the suppliers to the fertilizer plant, claiming they knew they were supplying inherently impossible 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.