Insurance is a legally binding agreement between the insured and the insurer. Insurance entails financial security for the insured from the insurer in case of loss. The insurance security is usually in monetary form. The insurance is based on the probability of risk or loss, which may or may not occur. It could be the death of the insurer or damage or loss of equipment, among others.
How it works
Insurance can cover a variety of things and properties. There is life insurance, health insurance, car insurance, education insurance, equipment insurance, patents can also be insured; even something as intangible as an idea is insurable.
Insurance helps the small business owners, who will find it hard to bounce back in case of loss, unlike big businesses that are better equipped to deal with failures. When a company is insured, the owner can take risky business decisions that can help grow the business and has a sort of safety net.
In business, the equipment used to carry out business activities is essential, and hence there is the need for them to be insured against unforeseen events such as theft, breakdown, etc. If a loss occurs with any equipment, it is expected that such equipment is guaranteed; if this is not done, the owner, therefore, has to pay for the replacement (if it gets stolen or repairs if it gets spoilt) from personal funds, which reduces the cash flow. Insurance will not cover wear and tear of any equipment you owned because wear and tear are part and parcel of every piece of equipment. It is expected that after a reasonable period, the equipment will be due for a change.