Businesses can face all kinds of unexpected disasters from natural disasters to lawsuits. Recovering from these disasters can often cost a lot of money. While you may be able to take out a loan to pay for reparations, getting into debt isn’t ideal. It’s better to have some kind of financial plan in place to safeguard against disasters. Insurance and savings are just two of the best options.
But which option is better for your business? It depends a lot on the type of disasters you’re protecting your business from. This guide explains just when to take out insurance and just when to set aside savings.
When to choose insurance?
There are some forms of business insurance that are mandatory. For example, if you’re hiring employees, you have to take out worker’s compensation insurance. If you’ve got a business vehicle, you need to make sure that all drivers are insured.
Other forms of insurance are optional, however many are highly recommended. A policy such as public liability insurance could be essential if you’re a tree surgeon, allowing you to provide compensation in the event that your work accidentally causes damage to someone or someone else’s property. Some clients may refuse to take you on unless you have this insurance in place.
You cannot insure your company against all disasters – to do so would cost you huge amounts of money that no average business can afford. As a result, you need to be selective about which disasters you insure your company against. It’s often best to focus on the most serious and high-risk disasters. Try looking for an insurance and risk management service that allows you to personalize your insurance policy. This allows you to insure yourself against specific disasters relevant to your business.
When to choose savings?
As mentioned above, you can’t insure yourself against every type of disaster. Savings on the other hand can be flexibly used to help fund recovery for pretty much any emergency situation. You could use them to replace broken equipment, pay off a lawsuit or provide income during sickness. Savings can even be used to pay off insurance deductibles when making a claim.
You can put money into a high interest account and let it grow by itself over time, or you can contribute small amounts each month. It’s worth noting that there may still be some disasters that you are unlikely to be able to save enough money for – one of the greatest bonuses of taking out insurance is that you can get compensation for disasters costing hundreds of thousands of dollars (and in some cases even millions).
Why you should choose both
Neither insurance nor savings can be used in a single way to fund all emergencies. It’s worth taking out insurance to cover some disasters and using savings to cover others. Insurance is ideal for the most expensive disasters. Savings are useful to have for those less expensive random disasters, as well as helping to pay off your insurance deductibles.