The worst time to find out that your business is underinsured is when your claim is part paid, or you realise that your insurance doesn’t cover all your stock, goods or equipment. So, what does it mean to be underinsured and how can you avoid this for your business?
What is underinsurance?
Simply put, underinsurance means that your insurance doesn’t provide the level of cover your business really needs, especially in the case of a large loss or a disaster.
For example, if your commercial property burns down and the sum insured in your insurance policy is 70% of the value of demolishing, rebuilding and also refitting the inside of the building. Then you won’t have enough money from the insurer to rebuild, you may have to pay the balance of the rebuilding costs. Insurance is designed to help you manage financial risk, pay insured claims promptly and help you get your business back up and running.
Common causes of underinsurance for SME’s
Lack of correct insurance can be due to lots of reasons, the owner being time poor, insurance is seen to be expensive or not necessary, as the perceived risk is low. Some examples are:
Lack of insurance cover. 80% of SME’s don’t have insurance to cover loss of Business Income or Revenue, following a claim, with the majority closing for good without adequate cashflow. This type of insurance pays the ongoing fixed costs of the business, as well as staff and the owners’ wages, while the business cannot trade, or the building is being repaired.
Insufficient sum insured or lack of cover for specific items. This can result from under-estimating the value of specialist equipment or stock at peak periods. For example, if there is a $25,000 limit on portable equipment and the replacement value is $50,000 when making a claim, then the amount paid under the policy is less than the replacement cost.
Type of damage is not insured. This include flood and bushfire damage not being insured, as the risk was not considered, not properly understood or seen as too expensive. These events can be catastrophic and put the company out of business.
How to avoid being underinsured
There are two easy ways to help in minimising the possibility of being underinsured. The first is to speak to your insurance adviser because they understand your industry and can advise and assist you to review your insurance and risks, reducing the risk your business is underinsured.
The second is to regularly review your insurance cover, particularly when changes are made to your business. These can include renovations, machinery upgrades or expansions. Also keep in mind that costs increase over time, so whilst your estimates of sums insured or the types of cover might have been correct 5 years ago, you may not have the right cover today.
Do you have to pay or contribute to the loss if you are underinsured?
The answer is probably, yes because there are average replacement clauses in property policies for example. This means that if you are underinsured (less than 90% of the replacement value), you may be contributing to the rebuilding or replacement cost. If you don’t have the type of insurance you need, you may have to foot the entire bill.
To decide what type of insurance policies are suitable for your business, talk to an insurance specialist today and find your local adviser.
General Advice Warning
The information provided is to be regarded as general advice. Whilst we may have collected risk information, your personal objectives, needs or financial situations were not taken into account when preparing this information. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant product disclosure statement before making any decision to purchase this financial product.
What is it?
Cover for loss or damage to your physical business assets in the event of an incident occurring.
What does it cover?
Property Insurance, also known as Industrial Special Risks, covers the material items of your business such as buildings, contents, stock, plant and machinery. The policy normally covers a variety of insured perils, however there are various considerations to be made when selecting the right Property Insurance for your business. Some examples include:
- Has the occupancy and use of your premises been adequately disclosed to the insurer?
- Is your sum insured adequate? How have you determined your sum insured?
- Could you build somewhere else in the event of your property being destroyed?
- Are your contents covered inside the building and outside?
- Is accidental damage covered, and to what extent?
- Are your demolition and removal of debris costs covered?
With so much to keep in mind, Property Insurance can be more complicated than it initially seems. The best way to navigate the options and ensure you’re fully protected is to speak with an Insurance Advisernet Authorised Representative.
Plant & Equipment Insurance
What is it?
Plant & Equipment Insurance is important for a wide variety of businesses that rely on mobile plant and equipment to continue their business activities. It protects the equipment itself, but also the liabilities associated with its use, from portable tools and the smallest of earthmoving machines, to forklifts and the largest of cranes.
What does it cover?
Policies typically cover for your plant and equipment against incidents such as damage, theft and breakdown. Some of the other key considerations include:
- Hired in plant equipment
- Material damage
- Road Risk
- Automatic cover for newly acquired equipment.
To ensure business Plant and Equipment is adequately covered, speak with an Insurance Advisernet Authorised Representative today.