The power of insurance

An old idea is that wonderful innovation we take for granted called insurance. Insurance works like this, the insurance company takes the risk and you pay them (premium) for doing so. Everyone contributes to a pool and when someone makes a claim it comes from this fund. So the fortunate pay for the unfortunate.

Risk aversion

So insurance is about transferring risks. While entrepreneurship is about risk taking, there are many risks that an entrepreneur is not capable or willing to take. In fact, while you can accept some risks, it is wise to give some to someone else. Why take the risk of your business burning down when it will cost you a fortune to stock it and put up a building? Then there is the peace of mind from knowing that you are covered with adequate insurance. So now you have more time to use your brain power on building up the business. The bottom line is keeping away from some risks especially when they can be catastrophic and have a high chance of happening.

Life is short

The first rule of the jungle is that you want to protect yourself. If you are not around and you are the key person then business and your dependants suffer. This means that adequate life insurance is important and it should always cover the debts plus some more. Wayne Mohammed Agency Manager at Sagicor recalls that one of his clients, an entrepreneur with a wholesale pharmaceutical firm, got a sudden stroke. He died at age 40 and his family was able to live debt free. However the business did not continue as the founder took the business with him.

There is another type of insurance called key man that covers the main person in the business. This could be the founder, general manager or other person who have special skills that would severely hamper the business if they were to die. While life insurance cannot bring back the dead it can offer financial compensation to make the option of bringing in someone with the required skill or valuable cash to change the business.

There is another type of insurance called living benefit insurance. When you die and the claim is paid you cannot collect or benefit since you are dead. Living benefit is paid to you when you are alive. However, it is more likely you can suffer some major sickness or disability. This could be either temporary or permanent. It can also be short or long term. One can get sick with a dread illness. Many insurance companies sell critical illness policies which cover heart disease, cancer, stroke, etc that an entrepreneur could collect and pay for the medical expenses associated with it or go beyond that to cover any additional expenses.

There is also the issue of accidental loss of limbs, eye, ear, fingers, etc. This can limit the performance of an entrepreneur and so his business. Dismemberment covers these accidents. There is also the chance of not losing any limbs but being in an accident and not being able to work. Accidental and sickness insurance can cover loss of income and expenses. This can help an entrepreneur cover any lost earnings that she might have incurred.

Many business people fail to cover themselves especially with medical insurance. Some small businesses have had to shut down because of major illness of the founder.