When should I insure a business against risk?

When should I insure a business against risk?


At what point in a business’s lifecycle or level of turnover should an entrepreneur insure against risk?

The entrepreneur needs to factor risk in at the time of conceptualising the business plan. The questions to ask are: What risks can occur which can either put me out of business permanently or which can affect my future financial results for more than 12 months?

Once these questions are answered, those insurable risks can be priced and the entrepreneur will understand the impact of the potential cost on the business model.

The entrepreneur will also know and understand that by choosing not to insure some potentially catastrophic risks – the financial risk of the business model is increased. Theoretically, the smallest business has the least tolerance to risk and the largest business the biggest tolerance.