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The real risks of underinsuring your business

April 15, 2016

If you’re a business owner, you know how much work goes into growing and maintaining your operation. Imagine then, if your business were to go up in flames. But what if, on top of this, you discovered the policy you’ve been paying for over the years does not cover the loss and damage caused by the fire?

Unfortunately, this scenario isn’t just a hypothetical. Underinsurance in Australia is considered to be a chronic problem, especially in the commercial landscape.

Here are our insights into how you can avoid the pitfalls of underinsurance, so you’re covered, if and when you need to make a claim.

What is underinsurance?

According to the Insurance Council of Australia, underinsurance is:

When the value you have insured your property for is not enough to cover the full value of the items you are insuring.

How does underinsurance affect me?

If you’re like most savvy business owners, you protect your business by taking out comprehensive insurance cover against loss and damage to your commercial building, and its contents.

But according to the Insurance Council of Australia, many business owners are actually underinsured or not insured at all.

If you’re in this category of business owners, and disaster were to strike your business, you will be out of pocket, and in some cases, out of business too.

Although this verdict does sound dire, it is important to note that there are steps you can take to ensure your commercial property and its contents are protected.

How to combat underinsurance

  • Every insurance policy should include a Product Disclosure Statement (PDS), as well as policy documents. Read these carefully to ensure you know exactly what you are covered for.
  • Work out what kinds of risks your commercial property is likely to be exposed to. For example, during the Christchurch quakes of 2011, many business owners were not insured against the risk of earthquakes. (Many insurance companies paid out claims anyway, but this is not a usual situation.)
  • Speak with Councils and Emergency Management Authorities to determine what kinds of risks your commercial property is likely to be exposed to.
  • Consider the rising costs associated with building and meeting requisite standards. According to the Insurance Council of Australia, a property is underinsured if the policy covers 90% or less of rebuilding costs.
  • Make sure your policy includes cover for debris removal, demolition, council costs and engineering and architectural costs.
  • Ensure items located at your business are correctly identified in an inventory. This is vital, as often capital equipment and other business items are insured for less than it would cost to replace them.
  • And finally, we highly recommend speaking with an insurance broker, who can assist you with identifying whether your insurance cover is comprehensive enough.

Get the right level of cover for your business

An insurance broker compares many different kinds of commercial cover, and pinpoints a solution that covers your commercial property for all possible risks. They take into account the kind of business you are operating, as well as the possible situations you should be covered for.

A good insurance broker will make sure you never experience the trauma of losing your business, and then discovering you do not have the funds to rebuild.

Speak with one of insurance brokers about protecting your business against underinsurance today. For information on protecting your home from underinsurance, head here.

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