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Unit 2: Risk and Insurance

(d) It promotes economic growth and development. This would be impossible in the Notes
absence of insurance.
(e) It contributes to the efficiency of business and also industrial and commercial
executives.
(f) Security of dependents is made possible through life assurance. It gives relief to
helpless families after the death of the earning member of the family.

Self Assessment

Fill in the blanks:
9. The concept of insurance was sparked by the idea of ………………….. risk.
10. The practice of replacing of the ……………………… value of a human life has also grown
out of this thought process.
11. ……………………. is a device of preparing for the bad consequences of the future.
12. Insurance helps in achieving favourable allocation of the factors of ……………………..

2.4 Importance of Insurance in Business

You must be aware that many business owners feel business insurance is an expense they cannot
afford, or is a luxury for more established businesses. Although it is true business insurance can
be expensive, it is an expense every business, regardless of the industry, size or length of time in
existence, needs to include in its budget.
1. Theft: A new business is a big target for thieves. New computers, furniture and other office
equipment are worth more at a pawn or chop shop than older equipment. Even older
businesses that have just undergone renovations and upgrades are a target. Replacement
insurance protects a business in the event of stolen equipment, replacing the missing
items and paying for repairs from damage caused by the invasion.
2. Liability: If a customer slips and falls while on your business premises or your product
has a defect that injures a customer and you do not have insurance, this could spell the end
of your business. If a company car is involved in an accident and someone is injured, that
could be disastrous as well. Business liability insurance covers accidents that occur on the
business premises, product defects and mishaps that occur during normal business
operations on and off premises.

3. Level of Coverage: How much insurance to carry will depend on your industry, the business
structure and the amount of assets your business has.

Example: A law firm partnership that owns the building in which it is housed might
need more insurance than a jewellery designer operating out of her home.

4. Litigation: We live in a litigious society. Even with the Texas tort reform legislation
passed in 2003, which capped judgments and sought to eliminate frivolous lawsuits,
businesses are sued by individuals and other businesses for a variety of reasons, legitimate
and otherwise. Even the most frivolous lawsuit can be costly to defend; and in the event
business ends up on the losing end of a lawsuit, the awarded damages could exceed the
business’s capabilities to pay. Depending on the business entity structure, not only the
business assets, but also the owner’s personal assets could be at risk. Business liability
insurance, malpractice insurance or professional liability insurance will cover at least
part, if not all, of any damages.

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