Why Your Business Needs Insurance (and What You’ll Pay if You Don’t Get It)

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Insurance – it’s something nobody wants, but everybody needs. And that’s especially true when you own your business.

All businesses, whether you’re a sole trader or a multinational conglomerate, will need insurance. The problem we face, however, is that there is no generalised ‘business insurance’ policy that fits all kinds of companies.

The type of insurance you buy will vary depending on your business’ size, type, industry and risks. An accounting firm will experience significantly different risks to a restaurant or a hairdresser.

So before you settle on a commercial insurance policy, you’re going to need to look closely at your business, what it needs and what you legally need to operate.

Below, we’ll detail why your business requires insurance, the different types of polices, and your business cold pay if you don’t buy them.

Why your business needs insurance


Your business will need insurance simply because the world is a risky place. Insurance policies are a great way for you to have piece of mind, in case your business is hit with an unexpected cost. Below we’ll outline in detail why your business should purchase an insurance policy.

The law requires it

Some states require you to take out particular forms of insurance by law. This may include workers compensation insurance or public liability insurance (see more about this below). Specific professions may also require a professional indemnity insurance policy by law, such as law practices.

Your products or services could hurt someone

If you’re selling products or services, things can go wrong. You may sell food that causes somebody poisoning or an electronic device that catches on fire. Your services, if not properly delivered, may cause somebody to lose money.

If any of this happens, your clients or customers may blame you for it – and sue you for any loss or damage they suffer. This can cost you tens of thousands of dollars in legal fees, so having insurance gives you that peace of mind in case the worst happens.

Your staff could get hurt at work

Your workers go through risks everyday at work. If you engage manual labourers, they could break a bone in their body or suffer long-term injuries if using particular joints everyday. If your industry is particularly stressful, your workers may develop mental health issues and develop a psychological condition.

The result could be your workers sue you for their medical costs, and their pain and suffering. Work health and safety regulators may also prosecute you.

This emphasises the importance of a robust workers insurance policy, which is mandatory in most circumstances in any case. (Although note, in some states – such as in New South Wales – it is unlawful to provide insurance for penalties imposed under work health and safety law).

Your products might get stolen or damaged

If your business has a lot of stock, it will certainly be worth insuring it. It may get damaged in transit, fire, floods, or your employees may accidentally destroy it. Third parties may breach into your supply chain operations and steal it. Protect your products with a good business theft insurance policy.

Your clients’ information may get compromised

It takes a lot of effort to protect the personal information of your clients. Client lists and databases are some of the most valuable and confidential pieces of information a business may own. If it’s compromised, you may be in breach of privacy legislation and other contractual obligations to your clients.

You could get sued for … anything

We live in a litigious society. You and your business may have done nothing wrong, but people can sue you if they think they have a case (even if they actually don’t). You will still be made to spend money on lawyers to defend a claim. You may even successfully defend a claim, but you may still not get all your legal costs back. Ensure your business is protected by insurance to pay your legal costs.

Contracts may require it

A lot of contracts your business enters into requires you to have a degree of insurance. If you don’t have insurance, you may be in violation of your contracts.

You’ll see this requirement in contracts quite a lot. It’s there because the business you’re entering into an agreement with can have peace of mind that you’re insured – just in case the relationship with you deteriorates (and you need to pay costs).

It makes you look professional and credible

Other than all the practical benefits of having insurance, an insurance policy can make your business look reputable, professional and an entity that others want to do business with.

Risks of being uninsured


There are a wide range of business risks if you begin to operate without any form of insurance.

Your business assets are at stake

Without insurance, your business assets are at risk. If you are sued, nobody is paying your legal costs other than you. If you’re a sole trader, your personal assets will also be at risk – including your car and your home. An insurance policy can protect you and your assets in case proceedings are launched against you.

You may be breaking the law

As we outlined above, some insurance policies are mandatory. If you’re an employer and you are operating without a workers insurance compensation policy, for example, you may be liable to pay penalties and even to imprisonment.

You may never recover from an accident

If an accident happens at work causing loss and damage to your products (such as a fire), you may never recover if you’re uninsured. This is because you may not have the funds to restore your business to what it once was.

So, what insurance does my business need?


Now that you know the benefits of having insurance, and the risks of operating uninsured, it’s important to look at different types of policies so you know what is available to you.

Public liability insurance

A public liability insurance policy protects you and your employees for causing damage to property or injury to third parties. Say, for example, a customer in your store slips, falls and breaks their back on your premises. As another example, say an employee accidentally damages your customers’ property in the course of their duties.

A public liability insurance policy can cover the cost of compensation, such as medical bills or repair costs. It can also cover your legal costs in case you are sued. Claims can cost you tens of thousands of dollars, and may even place you out of business especially if you’re running a small or medium-sized business.

Professional indemnity insurance

If your business involves carrying out a service or delivering advice (such as legal or financial advice), then you should certainly purchase professional indemnity (PI) insurance. In Victoria, lawyers actually must have professional indemnity insurance, or they are not allowed to practice. Professionals providing public accounting services in Australia must also have PI insurance.

This insurance covers you in case your services or advice causes a client damage and can also cover the legal costs if somebody makes a claim arising from your breach of duty of care.

Workers compensation insurance

This insurance is required by law. You may be operating unlawfully if you do not have it.

In Victoria, for example, it is mandatory if you’re an employer to register for WorkCover insurance. This is so that the workers you engage are protected in case they hurt themselves at work. You’ll will need to register for this insurance if:

  • Your annual remuneration is (or is expected to be) over $7,500 in a financial year; or
  • You employ apprentices or trainees (no matter how much your annual remuneration is).

In New South Wales, as another example, you must also have a workers insurance policy if you:

  • engage workers or contractors (deemed in law) to be workers, and you pay occur $7,500 per year in wages (or you expect to pay that much); or
  • engage apprentices or trainees; or
  • are a member of a Group for workers compensation purposes.

Any questions on your legal obligation to have a workers compensation policy should be directed to your legal advisor.

Business insurance

A business insurance policy typically comes as a package – including theft, general property, building and contents.

This policy is crafted to shield your business in the case of material damage caused by so-called ‘acts of god’ (such as storms and fire) as well as theft and accidental damage.

This is very important in case your business has expensive equipment, such as computers or vehicles.

Business interruption

Business interruption covers you in case your company comes to an unexpected halt. This could be the result of storms or theft, a burst pipe or a power outage. This insurance can help you cover the costs of restoring all your systems so you can get back to work and start earning money.

Importance of a good insurance broker


There are so many different types of insurance, and it’s important to know which polices you require for operating your business. A good insurance broker can break down your business needs, and figure out exactly what policies you need to cover your risks.

They’ll get you in touch with the right insurance companies, and get you the polices you need to operate profitable business with the peace of mind necessary to get your job done without fear of unexpected costs.

Renee’s insight

I’ve worked with number of insurance advisors in my time.

They all vary in quality and expertise – just like accountants do.

I cannot stress the importance of having a great insurance advisor. Their services are absolutely  invaluable – especially when they have specific industry knowledge relevant to you.

Insurance is all about reducing the financial impact to you in case the worst happens. It’s not about reducing risk – it’s covering yourself when that risk comes to life.

Insurance brokers are experts who aren’t beholden to any insurance company. They’re completely committed to finding the right provider for you.

So if you’re looking for an insurance broker, please get in contact with me at 0417 113 827. I’m more than happy to refer you to specialists in my network.

Please also see my events page for upcoming webinars: https://2account.com.au/events/

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