Why Buy Insurance – especially for Professionals!

I encounter many people who run their business year in and year out without insurance and only approach the subject when it becomes a contractual obligation. While they may not be required or regulated to carry the insurance, doesn’t mean the risk isn’t present for them to be pulled into a suit for misrepresentation etc. Even BS suits (pardon my French) cost money to defend. So when you buy a policy, what is your money  buying (besides peace of mind)

Some insurance is mandated to us and other types are not. Auto insurance is regulated in most provinces because it is in the best interest of all the people for there to be a source of funds to offset damages inflicted by accidents. The very definition of an accident (as sudden and unforeseen event) means that we don’t know when it will happen but we are told that we need this intangible product that will protect us.

Home insurance is made mandatory by banks and lenders mostly – because they want to protect their asset (even though we own the house – they do as well). As a homeowner, it behooves you to obtain the coverage but you can certainly self-insure if you have the money.

Life insurance/ mortgage insurance: This type of insurance is purchased because one party to a contract has a vested interest in the life of another party. Mortgagee owes money, Kids rely of parents for support, buy-sell agreements need to be funded etc.

Business insurance: purchased because of either contractual needs, protection of assets, protection of funds against claims for accidents

Professional Liability (errors and omissions): Same as business insurance but also to protect the public because the people who buy this have a specialized knowledge in a certain field and their opinion is relying on more than a laymen.

In many cases, professionals aren’t regulated or mandated to have the coverage but the risk exists (I as Joe Public rely on your unique knowledge and experience in fields that i know nothing about). The only difference in obtaining the coverage or not is that you are self-insuring versus transferring the risk of loss to a third party. When we obtain quotes, we will be considering the reasonable cost of transferring that exposure to an insurance company versus retaining it within your company. Cash flow becomes a major factor as does the potential for loss. It should also be noted that incorporation laws have changed and the owners of the corporation are personally liability for its actions.

Entrepreneurs know that when they start a business, they are putting their whole lives and assets on the line. As professionals (IT, Consultants etc) working in a self-employed capacity, we do the same. Our exposure is in fact higher than a simple slip and fall claim. Our very experience, knowledge and training comes into question and thus must be defended.

It is said that there are no small errors and omissions claims – they either don’t happen or they are huge.

Hope this gives you some food for thought – “it will never happen to me” works for only so long.

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