Tuesday, 23 August 2016

The 5 must-have Insurance Policies for SMEs

SME Insurance

Small Medium Enterprises play a crucial role in development of Indian economy. It employs 40% of India's work-force. According to DIPP statistics, India's SME sector manufactures over 7,000 products ranging from traditional to high-tech in both domestic and international markets. And with the surge in e-commerce business, it is slated to grow exponentially over the next five years. Despite all these promising numbers, India's MSME sector still remains the most challenging one's to operate.

Red tape, limiting regulations, dearth of finance, inadequate infrastructure, family run management and unskilled labour are the major reasons that hamper SME growth. Insurance is not just a legal mandate but a necessity for this sector. Adequate coverage can minimise internal and external risks of business enterprise. Sure, a majority of low-margin profit SMEs think of insurance as a burden but they themselves do not claim to be calamity proof.

For an SME, insurance is important because it provides protection against unforeseen eventualities; empowers the business; manages or reduce cost of unplanned risks; and enhances consistency and momentum of the business. Small businesses usually don’t have that kind of saving fund that can be diverted to resurrecting the business in case of an eventuality. This makes it all the more important for them to have an insurance plan. SMEs see a lot of business ups and downs and an insurance cover can provide them adequate financial support when the need arises.

The 5 must-have Insurance policies for SMEs

1. Employee Liability Insurance - Any employee including contractual workers are included in employee group insurance scheme. The policy covers statutory liability of an employer for death, bodily injuries or occupational diseases arising during the employment. A cover of Rs. 2 lakh rupees or more is an industry standard to cover all the hospital charges in Tier 1 cities. As a part of employee welfare, some business enterprises have tie-ups with nearby city hospitals where the family members of employees get free treatments.

2. Standard Fire and Special Perils policy - The insurance company will indemnify the insured due to loss because of fire which may be caused by natural fire, combustion, lightning, riots and natural disasters. Building, plant and machinery, furniture, business related goods are covered in these policies. Fire policy is an annual policy. The cost of fire insurance is calculated on the area of business activity. Fire exits, fire fighting drills, fire safety equipments reduce the risk of calamity and thus reduce the premium price. Fire photographs or newspaper article on fire acts as a legal proof for the claim.

3. Burglary Policy - Theft of physical products or copyrighted digital product is covered under burglary policy. Policies issued to business premises cover stock-in-trade, money in transit, goods in trust or on commission, fixtures and fittings, tools of trade such as typewriters, calculators and other similar property and cash and currency notes in locked safe against the risk of burglary and house-breaking. Burglary insurance can be essential for technology based startups as cyber crimes such as hacking, skimming and cloning can be covered in cyber security insurance.

4. Machinery breakdown policy - When the production of a factory grinds to a halt because of breakdown, it can result in huge losses. Especially when delivery schedules are tight and the penalties are strict. The policy broadly covers loss due to all kinds of accidental, electrical and mechanical breakdowns as a result of internal and external causes. Loss in freight charges due to mechanical breakdown is also covered.

5. Special Contingency Policy - This is an add-on insurance which covers against floods, earthquake, tsunami etc. Special contingency provides cover against external as well as internal risks. Loss to business due to strike, riots is add-on. The rate of premium varies from 1% to 2% of property to be covered.

- Chaitanya Kulkarni ( twitter.com/chai2kul )

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