Are you a businessman badly in debt? Here is how you can save yourself from tragic consequences
The Insurance Sector plays a key role in mitigating the hardships arising out of insolvency. Insolvency, per se, arises out of a situation whereby the company is unable to pay the money it owes to lenders on time.
For businessmen, the worst case scenario unfolds when they cannot pay back their debt. It can lead to tragic consequences including closing down of their companies and even jail for them. However, they should think ahead and save themselves from such a terrible fate. This can happen through the Insurance sector, which plays a key role in mitigating the hardships arising out of insolvency. Insolvency, per se, arises out of a situation whereby the company is unable to pay the money owed to lenders on time. There could be several factors that may lead to insolvency. Some of these business risks could be unable to invoice customers on time, unable to chase debts properly, keeping unnecessary stock and doing overtrading and so on and so forth. To save themselves from such risk, businessmen should eye proper insurance.
Speaking on how insurance can help a corporate to avoid insolvency, Pankaj Chauhan, Managing Director at EPOCH Insurance Brokers said, "The first and foremost policy that comes to the mind is an assets policy that protects you from fire and Allied Perils. The moot point in question is taking the right sum insured for each of the assets so that one is not penalized for underinsurance. This underinsurance has often lead to many companies to get heavily inadequate compensation leading to the financial crisis."
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Another important policy in question would be the Director’s and Officer’s liability policy, whereby a company gets compensated for decisions taken by their managers, resulting in payment towards lawsuits through a court of law. Such court decisions can adversely affect a balance sheet of the company if the compensation ordered is big. Yet another important policy in this context is a Trade Credit insurance policy. It protects a company against the failure of their customers to pay trade credit debts owed to them on time. Such debts can play havoc with a balance sheet of a company or its cash flow in case of big customers, who do protracted defaults.
"A Merger and Acquisition policy would be very useful in case of certain enforceable risk. In the event of a merger or an acquisition, this insurance significantly reduces both buyer and seller’s inherent risks in doing a transaction which in turn helps to close the deal fast. In fact, this insurance protects the seller and buyer from financial loss resulting from a tax indemnity or breaches of seller’s representations and warranties. A single policy can cover a diverse range of risks including inaccuracies in representations, the accuracy of accounts and tax liability etc," said Chauhan.
Summing up, insolvency can be, to a large extent, controlled by choosing the right kind of insurance policies under the guidance of professional brokers which, in turn, will pave the way for a healthy and sound commercial balance for a company. Thus, insurance prudence can safeguard a company from insolvency in many ways.