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In ancient times, merchant ships were sometimes captured by pirates and held for ransom. Merchants began to contribute to a common fund which was used to pay the ransom. After a time, the merchants saw the advantage of extending this system of sharing risks to take care of the loss of cargo from fires and storms, in addition to piracy. When a person takes out insurance, these same principles of sharing losses are followed.
Competition is a risk to the business owner and can be met by ability, knowledge, and imagination. There are other risks that are not insurable. These include the effects of a business depression, changes in styles and public tastes, and population changes from one part of the city of country to another.
There are risks that are insurable, and a business owner can guard against them. These are risks for which the possible great financial loss can be transferred all or in part to an insurance company pool. It should be noted that only the financial loss can be transferred. The annoyance and inconvenience caused by damage, loss of property, or personal injury still remains.
There are several insurance terms which should be known. You must have an insurable interest in something in order to insure it. A financial loss must occur, and only property or relationships which are valuable to the insurer can constitute an insurable interest. For instance you could not insure the life of your competitor. You must be able to prove a loss or the insurance company will become suspicious.
The policy is a contract between the insured and the company. It gives the exact details of the property to be insured, terms of the policy, amount of premiums, and other specific information.
The premium is the amount of money which is paid to keep the policy in force. If the period covered by the policy passes and another policy is not issued, the policy is said to lapse. Policies insure for only a specified period of time and losses which occur only during that period are covered. Insurance for your business can be divided into six classes. These classes include liability insurance, property insurance, business interruption insurance, fidelity bonds, business life insurance, and special insurance.
Insurance is a service which business purchases from either an insurance broker or an insurance agent by paying premiums. An insurance broker is an independent business owner who sells insurance for several different insurance companies. An insurance agent is a representative of usually one insurance company and sells only that company’s insurance. Both of these business persons must meet certain standards before they are licensed to sell insurance. As a rule, they can be counted on to give you good service and advice on the types and amounts of insurance needed for your particular business. Insurance companies must be approved by each state in which they sell policies.
When insurance is purchased, it is important that you get the best protection for the money paid. The best value is not always the policy with the lowest premium. Usually, the longer the term of the policy, the lower the premium is each year. A policy for five years would have a lower annual premium than a policy for one year. Businesses save money by purchasing a blanket policy instead of individual policies. However, these are money-saving practices only if they provide needed insurance.
Most owners of small businesses do not have extra money to cover emergencies. If adequately insured, the proprietor of a small business cannot be forced out of business by a fire or large liability claim. Adequate insurance is important because many business owners are underinsured.
The insurance policy is a contract between the insured and the insurance company. Therefore, it is important that the buyer reads, understands, and fulfills the obligations of the agreement.
The business owner is urged to seek legal advice for business problems. You may feel that getting a lawyer is too expensive. If you make a mistake that a lawyer could have prevented, however, the loss could easily cost you a great deal more than the lawyer would have charged you. Whether it is buying insurance, getting an accountant, seeking legal aid, or buying merchandise, you should never be ashamed of asking for help. All business owners need help in making decisions.
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