Insurance fills an important place in business today, just as it did in the past. When it comes to dealing with the risks that affect your business, it helps to make a distinction between two types of risks.

There are some risks you can assign by purchasing insurance. For example, you can transfer the risk of theft or vandalism to your business equipment by purchasing property and casualty insurance.

Other risks you must assume yourself. For example, a product or service that you offer may become obsolete due to improved technology. A competitor may develop a superior product at a lower price and capture your market share. Unfortunately, you cannot buy insurance to cover these types of risks.

Risk assessment is the process of posing a wide range of "What happens if. . .?" questions to determine the potential frequency and severity of loss. Some common questions for business owners to raise are:

• What happens if a fire destroys my business?
• What happens if I become disabled?
• What happens if someone sues me?
• What happens if a key employee dies?
• What happens if I die?

Risk management is the process of determining how various risks will be handled. The available options are:

• Avoid the risk.
• Try to reduce the risk.
• Assume financial responsibility for the risk.
• Transfer the risk to someone else.

Assuming responsibility for the risk (i.e., self-insurance) may be appropriate for small potential losses.

Transferring the risk to an insurer is the most common and effective way to protect against potentially catastrophic loss. The fundamental rationale behind all forms of insurance is to determine what risks can be transferred (i.e., insured) on a cost-effective basis.

Review the various types of insurance available to protect the business owner against substantial loss. The basic information provided will either affirm the insurance decisions you have already made, or assist you in developing a plan that will help to ensure the future security of you, your family, and your business.