How A Business Can Financially Protect Its Capital Investment

How A Business Can Financially Protect Its Capital Investment

Meaning of insurance

Insurance is an assurance or guarantee that insurance agency or company offers to compensate specified damage of loss for a price which is called insurance price or premium. The damage in insurance may relate to loss of life or property and it depends on type of insurance procured. Generally speaking, insurance is basically of two types; on life of a living being like life insurance and health/accidental insurance, and for properties/ assets and goods/services. This is just a broad classification but each category specifies large number of insurance types for different purposes.

What insurance does

Insurance offers financial protection to the holder against anticipated loss or damage which is compensated by the insurance company, if it happens in natural course, without deliberations, on a certain future date during validity of the insurance policy period. The extent of compensation depends on type of insurance policy taken like comprehensive or for specified losses/damages. There are many aspects of insurance that are specified in an insurance document, called insurance policy, provided by the insurance service company at the signing contract with the insurance company.

Importance of commercial insurance

Insurance has lot of benefits for the business. A business enterprise procures number of insurances for different properties and assets that financially safeguards business against damage or loss to the business property and assets. Insurance has foremost importance for any trading and manufacturing business because every business has enormous capital investment in property and assets to operate the business. A loss or damage of assets in any situation would mean shut-down of business operations.

Insurance requirement for manufacturing business

The manufacturing industry has major part of its capital investment in plants and equipments, the loss or damage to which is quite difficult to bear for any business. Plant insurance is a specific type of insurance cover for manufacturing plant and offers massive financial cover for an annual premium price which is too low compared to plant value it covers under insurance. There is another type of insurance, plant and equipment insurance, that covers both plant and equipments under a single insurance document or policy.

Importance of insurance for manufacturing business

While insurance for plant alone or plant and equipments together is incontrovertibly important for a manufacturing business, the plant and equipment insurance is always better over plant insurance because equipments are always worthful components in a manufacturing unit and involved major contribution of capital investment. The equipments are more susceptible to loss, and damage to equipments can result in hampering of business operations. This directly impacts the business profitability because on one hand business operations are ceased and on the other hands, profitability is reduced to a great extent. Here lies the utmost importance of insurance for any manufacturing industry to financially protect its plant and equipments from future loss. The cover forplant and equipment insurance is, therefore, the best ways to protect major part of capital investment.

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