Insurance a small business should think about
Know which risks can be insured, which matter for your business, and what to ask before buying a policy.
6 min read
Most small business owners in India insure their vehicle because they have to, and nothing else. Then a short circuit, a burst pipe or a break-in takes out a year's stock in one night, and there is nothing to rebuild with. Insurance is not about expecting the worst. It is about deciding, in advance, which losses the business could survive on its own and which it could not.
Start from what would close you
Before you talk to any agent, write down the three or four things that would end the business if they happened tomorrow. For most small businesses the list looks something like this:
- The shop, kitchen or workshop is damaged by fire, flood or an electrical fault
- Stock or equipment is stolen
- A customer or passer-by is hurt on your premises and holds you responsible
- You, the owner, cannot work for months because of illness or an accident
Anything on that list is worth pricing a policy for. Anything you could pay for out of a normal month's cash probably is not.
The covers worth knowing about
| Cover | What it pays for | Who usually needs it |
|---|---|---|
| Fire and allied perils | Damage to the building, fittings and stock from fire, lightning, flood, storm | Anyone with premises, stock or machines |
| Burglary | Stock, cash and equipment stolen in a break-in | Shops and anyone holding valuable stock |
| Shopkeeper's or package policy | Several of the above bundled into one policy for a small shop | Small retail and service shops |
| Public liability | Claims from people hurt or property damaged because of your business | Anywhere customers walk in, or work on site |
| Goods in transit | Stock damaged or lost while being moved | Anyone who ships or delivers |
| Health and personal accident | Your own treatment and lost earnings if you cannot work | Every owner — you are the business |
The names differ between insurers. What matters is reading what each policy actually covers, not what it is called.
A package policy built for small shops is often the simplest start: one document, one renewal date, and several of the risks above together. Ask two or three insurers what their small-shop package includes and compare the lists line by line.
Questions to ask before you buy
- What exactly is covered, and what is excluded? Read the exclusions page first. That is where the surprises are.
- What is the sum insured based on? If your stock is worth more in the festival season, is the cover enough then, or only in a quiet month?
- What do I pay myself before the policy pays? This is the deductible or excess.
- What proof will I need to claim? Usually purchase bills, stock records and photographs. If you do not keep them, the claim gets harder.
- How do I report a loss, and how quickly? Write down the number and the steps before you ever need them.
The commonest failure is under-insurance: insuring stock for less than it is worth to keep the premium down. When you claim, the insurer may pay only the same proportion of the loss. Insure what you actually hold, and update the figure when your stock grows.
Keep the records a claim needs
Insurance only pays out what you can prove. The habits from the bookkeeping lesson do double duty here:
- Keep purchase bills for stock and equipment, in one folder or one phone album.
- Photograph the shop, the shelves and the machines once a year, and after any big purchase.
- Keep the policy document somewhere you can find it in an emergency — not only in the shop that might burn.
Review it once a year
Set the renewal date as a task. At renewal, ask: has my stock grown, have I bought new equipment, have I moved, do I now deliver? Each of those can leave a gap in last year's policy.
Premiums, covers and exclusions vary by insurer and change over time, so compare current quotes yourself, and ask a CA or an independent adviser if the amounts involved are large.
Describe your business and what it holds to the tool below, and it will help you list the risks worth insuring and the questions to take to an insurer.