The right insurance policies secure liquidity

Something can always happen in a company. But with the right insurance policies, liquidity is not put at risk by it.

Unforeseeable events are among the biggest adversaries of liquidity. In a company these can be the most varied of things, for example the failure of an important production plant, a fire at a factory, or a supplier who can no longer meet its delivery obligations. The good news: with suitably professional risk and crisis management, liquidity is not put at risk by them. The key to this is above all taking out the right insurance policies.

Which insurance policies are available to business owners?

Businesses have a very wide choice when it comes to protecting themselves against damage with insurance. A general recommendation as to which policies are absolutely essential for your own company is usually not possible.

That is because every business operates by different rules, and this also makes it necessary to manage each risk individually. For risk assessment it is important first to evaluate the probability of a loss occurring and then to estimate the resulting loss amounts as precisely as possible.

In general, though, there are six different insurance policies that every business owner should look into in order to cover the corresponding risks and thereby secure liquidity:

Legal expenses insurance
Contents insurance
Machinery or electronics insurance
Public liability insurance
Professional indemnity insurance
Business interruption insurance

Legal expenses insurance: protection against high litigation costs

Every year around half a million cases end up before the labour courts in Germany. That figure alone shows how urgent and important appropriate legal expenses insurance is for companies.

The insurance helps to minimise the financial risks of legal disputes. Because being in the right is a long way from being proved right in court. In a lengthy case it can become really expensive without the right insurance, and for many it can even threaten their existence.

In most cases legal expenses insurance offers not only financial benefits but also appropriate personal support. Trained staff are available for all legal questions and for legal problems in the business, and help to assert your interests in court as well.

Contents insurance: to cover business and office equipment

In practice, contents insurance is often also referred to as property insurance. The purpose of this insurance is to cover all damage to business or office equipment.

The possible scenarios are extremely varied. Contents insurance covers the damage, for example, when burglars steal expensive IT equipment and damage the furnishings. And if someone forgot to close the windows in the evening and an overnight storm causes damage in the office premises, contents insurance also applies.

Since more and more businesses are relying on home working, it is important that the insurance also covers damage that occurs not directly at the business premises but at the individual workplace of the employees. That is the case, for example, with contents insurance from Hiscox.

Machinery or electronics insurance: additional cover on top of contents insurance

In many companies contents insurance is perfectly sufficient. Beyond that it is important to read the policy carefully so that it is clear which damage is actually covered by it. If it is a so-called all-risks policy, technical operating equipment is covered alongside the commercial equipment.

If that is not the case, machinery or electronics insurance can provide additional cover. This applies, for example, when expensive equipment is damaged by an operating error or a power surge. On top of that it also cushions the loss caused by the failure of the machines in question. Most contracts even include acts of sabotage against the equipment.

Public liability insurance: just as important in working life as in private life

With public liability insurance, business owners can protect themselves against damage to property and personal injury. To put it another way: whenever a third party suffers harm as a result of an event in your own company, this insurance applies.

That could be, for example, water damage that affects the office below and was caused by an employee’s carelessness. Or a visitor to your trade fair stand who slips on a banana skin and tears a ligament as a result.

Public liability insurance also applies to so-called “consequential” financial loss. That is the case, for example, when a customer’s laptop is accidentally knocked off the table during a customer meeting and the hard disk is damaged. In that case the insurance covers the cost of data recovery.

Rettung Daten Festplatte Liquidität

“Consequential” financial loss includes, among other things, recovering the data on a hard disk.

Professional indemnity insurance: important for consulting firms

In some sectors professional indemnity insurance is required by law in order to protect business owners against high compensation claims. That is particularly the case where advisory or treatment errors can cause major damage. Examples include doctors, architects and engineers.

But taking out a policy is also advisable for many occupational groups where professional indemnity insurance is not required by law. Anyone who advises clients or produces expert reports for them can cause financial loss in the process. With insurance, such losses arising in the course of the work are covered. Corresponding compensation claims are then met by the insurer.

In some cases the insurers also cover losses from clients’ GDPR breaches that arose because of incorrect advice from your own company. Here too, then, it is important to read the small print carefully and to check what damage cover the policy in question actually includes.

Business interruption insurance: to compensate for lost income

When starting a business, few entrepreneurs are likely to think that an unforeseeable event could interrupt their ongoing business activities.

Many business owners have become aware of the importance of such insurance precisely because of the coronavirus pandemic. Even if, in practice, the resulting losses are not covered by every existing insurance contract.

But there are numerous other scenarios in which business interruption insurance applies. For instance, when the company is paralysed for some time by a hacker attack and customers can then no longer order goods in the online shop. Or when the business has to close on official instruction.

Business interruption insurance can usually be adapted in modules to the needs of your own company. Among other things, it is also possible for the insurance to pay employees’ salaries during the outage. That means liquidity is not put at risk even during longer outages.

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