This guide was written jointly with experts from Symbo — a digital broker that helps you find and buy the insurance plan that suits your particular needs seamlessly
Running a business is fraught with many risks. Think about a fire destroying a retail store, an employee getting in a car crash while travelling for work, or a lawsuit threatening a business’ very existence. You can’t guarantee that none of this happens to you, but you can minimize the damage. How? With the right insurance policy.
Let us get started with the basics of business insurance. This piece will help you understand how insurance works and how to invest in the right coverage. And if you need any help with accounting or you don't know how to start a business in Singapore, let the professionals at Osome assist you.
What is Business Insurance?
A business insurance policy protects an organisation against risks. Put simply, if a negative incident impacts your company, you will be compensated with money or the equivalent. In exchange for this guarantee, you regularly pay smaller amounts of money to the insurance provider. The accidents and disasters that you are protected against depend on the terms of your contract. They can be fires, or vehicle crashes, or lawsuits, or bankruptcy, or all of them. The list goes on.
After you sign a contract with an insurance provider, you become a policyholder. The contributions you make are called premium.
Common types of insurance for businesses
- Property Insurance
- Liability Insurance
- Business Interruption
- Business Package Insurance
- Worker’s Compensation Insurance
As insurance policies are deeply specific about the kinds of events they cover, it is advisable to consult an insurance professional to make sure the relevant risks are appropriately covered.
When and why do you need business insurance?
Say, a hurricane destroyed Harriette’s flower shop, and her cashier broke a limb. Without insurance, Harriette would need a hefty sum for repairs and replacing the broken equipment. The injured cashier would need costly treatment.
Considering the financial damage incurred, Harriette would even have to consider closing the shop for good. In the future, Harriette would have fears about opening a different business as she would remember the turmoil and the debts she got into.
To prevent such situations, Singapore obliges all businesses to invest in at least some types of insurance. For instance, Work Injury Compensation cover and Commercial Motor insurance are mandatory.
Protecting your property
Property, in the context of a business, can refer to buildings, machinery, equipment, raw materials, computers, furniture, fittings, etc. A property insurance policy will cover financial losses or damage to such properties.
Some common types of property insurance covers offer protection against fire, theft, terrorism, natural disasters, etc. Insurance plans that cover risks specific to an industry are also available; for instance, a shipping business could invest in a cargo insurance plan to protect goods in transit.
Apart from protecting physical assets, this insurance cover can also provide funds right after a catastrophic loss, when a business is trying to get back on track.
Protecting your employees
Insuring employees can be mandatory, depending on their employment status. The two most important covers are work injury compensation and basic health insurance.
Work injury compensation
A work injury compensation cover protects a company in the event of employees filing claims for injuries or diseases. This insurance is especially important for businesses where workers face a high risk of injury, such as construction. It provides monetary protection to workers if they suffer an injury during the course of their work.
Under the Work Injury Compensation Act (WICA), all employers in Singapore are required to purchase this insurance for local and foreign employees (not freelancers and contractors) engaged in both manual and non-manual work. For non-manual work, workers earning less than $1,600 per month are to be mandatorily insured.
Employers who fail to provide work injury compensation cover can face a fine of up to S$10,000 or jail of up to 12 months.
Basic health insurance
For Singaporean employees, the Employment Act mandates all employers to make CPF contributions, a portion of which is allocated to MediShield Life, a basic health insurance for Singaporeans. Companies can also buy additional coverage not provided for by MediShield Life.
S Pass and Work Permit holders are not eligible for MediShield. However, employers are still required to provide medical insurance cover to them, as long as they are employed.
Employment Pass holders are not eligible for MediShield either. Employers can voluntarily purchase private medical insurance as part of employment benefits.
Since both work injury compensation and Medishield covers are mandatory, it’s important a business makes adequate provisions for these before purchasing additional coverage for its employees.
Protecting yourself from legal liability
There may be instances where a business is held legally liable for compensation due to an act of negligence by an employee. The following types of covers prove useful in this case:
Public Liability insurance provides coverage when there is bodily injury or damage to property and premises resulting from business operations, manufacturing, distribution, or sales.
Annie runs a construction firm. Annie and her team do restoration work of a historical building and they mess up: an ornate balcony collapsed. The insurance cover helps Annie repair damages.
Directors and Officers insurance provides indemnity to a company’s key decision makers should they be held liable for breach of duty or negligence.
Managing Director Mr. Hau of Granci Pte. Ltd. gets quoted in two newspapers doubting the propriety of the owner of a Granci’s supplier. The owner accuses him of defamation and files a claim. Mr Hau consults his insurer and appoints the best lawyer. His defence costs are covered by insurance and he is able to defend himself successfully.
Professional Indemnity insurance provides coverage to a specific occupation (auditors, lawyers, accountants) against legal liability arising from negligence.
Jason is a partner at a law firm. His employee Alan forgets to include an important clause in the contract they prepare for their client Greg. Greg suffers loss because of this, so he files a lawsuit against the law firm. Thanks to PI insurance, the firm has the money to cover its legal costs.
Do I need business insurance if I work from home?
Professionals and freelancers who conduct their business from home have as much reason to cover their equipment. While a standard home contents insurance policy is unlikely to be ideal for business use, a business contents policy for furniture, computers, printers, and other belongings is ideal. If you use a vehicle, buying a business motor policy will also make sense. Other than this, if you employ other people, an employer's liability cover is mandatory.
How much does business insurance cost?
The premium you pay for a business insurance will ultimately be determined by a number of factors, some of which are:
- The nature and size of business.Some businesses will inherently face greater risk than the others, for e.g., those that work with heavy and expensive equipment. Similarly, businesses with a greater number of employees will need more employers’ liability cover. The cost of business insurance has a lot to do with the nature and size of a company
- The cover required. A higher level of cover comes with a higher premium.
- Your claims history. If you received insurance payments in the past, the providers will expect you to make claims in the future, which means they will have to spend money on you instead of profiting from your contract. Therefore, they will set a higher premium.The best way to arrive at the right policy is to compare different insurance policies. Insurance providers have different criteria for determining the premium, so shop around and compare your options.