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What’s Your Risk Tolerance?

August 01, 2017

When you are looking to get a new business insurance policy, being informed matters. However, insurance companies often use terms like ‘risk tolerance’ with little or no context. Lack of proper information can cause business owners to buy insurance that may not be what they need. So, what is “Risk Tolerance,” and how can you identify yours?

Fundamentally, business risk tolerance is the risk that you are willing to tolerate to make or lose money. It is the basic risk framework that should be identified and consulted before decisions are made. Here are some questions to ask yourself when considering your risk tolerance:

What is the environment like for the asset/project?

Are there loss prevention measures that have already been taken? Is the facility secure? Does it need to be secure?

What is the minimum amount of insurance needed for this asset/project?

If a project costs $10,000 in insurance premiums but only pays $8,000 it may no longer be worth doing.

What is the likelihood of loss?

An older building built in an area with several natural disasters has a much higher likelihood of loss than a newer building custom-built for disaster.

Are you willing to pay the premium in order to complete the project?

How important is this project to the future of the business? Is it worth the premium or is there an alternative?

Like many other insurance concepts, risk tolerance considers several aspects of your environment and is often much more complicated than a single definition. An experienced agent can alleviate any confusion by auditing current policies to ensure that you have proper coverage and the policy fits your current risk tolerance, resulting in the best policy for your business.