Insurance to Make the Most of Earning Power

By Kyle Y Widner

Businesses often have one thing in mind - to earn money. The higher the dollar amount attached to a corporation, the higher its value is seen. A company's good will is seen as the difference of its earnings when compared to just the earnings of its actual products. People are willing to pay money to keep their current and future earning potentials secure. And this idea of having financial security can also be applied to having insurance.

Crunching the numbers

Say that you have a machine that produces a small part needed for car manufacturing. If you subtract the amount that it costs in interest and supplies to keep the machine running, it earns a net total of $5,000 a year for you. Now if you know that the average lifetime of the machine is 20 years, you can expect it to earn $100,000 in its lifetime. So if this machine should be destroyed in a fire after only 5 years of operation, you would lose approximately $80,000.

You can use the same information to put a price tag on the life of any person in the household that is making a paycheck. Shouldn't this earning potential be as important as that of the machine?

Going back to the machine, think of what happens if the machine breaks down. That year, instead of earning $5,000, it costs $5,000 to get it back and running again. This same equation can be paralleled by a family member becoming ill and not being able to work. The family member not only is not bringing home a paycheck for that week, month, or year, but he or she is now costing the family money in the form of medical expenses, food, shelter, etc. This is where insurance comes in.

Protecting employees equals protecting the business

A valuable employee is to a business what the family breadwinner is to the family. More and more companies are starting to realize what an asset a good employee can be when it comes to making money. Therefore, more companies are taking out insurance policies for employees, and the higher up in a company someone is, the higher the dollar amount of the policy.

The debt scenario

Just like a machine can either earn or cost a company money, the actual books of a company can also do the same thing. The accounts of a business are expected to perform in a certain way, and preferably with an increase in earning. However, bad debts can decrease the amount of net income a company brings in at the end of the year. The only way to protect against these bad debts is through insurance. Insurance can protect the building or assets itself, the business, and the value of the goods. This only holds true for the value of the policy, but the better your insurance policy is, the better the protection.

When you have insurance on your business, goods, and employees, you are investing in the future. You are safeguarding your company against future damages, so that if they occur, you do not have to worry about your financial status.

This author is a freelance marketing writer based out of San Diego, CA. She specializes in insurance, finance, and business.