Underinsurance: Is Your Small Business Fully Covered?

As a small business owner, ensuring your company is properly insured is essential to protecting your livelihood. However, many small businesses face underinsurance, which puts them at serious financial risk. So, how can you ensure you have the right amount of insurance cover?

Establishing the Right Level of Insurance Cover

One of the most critical questions is: ‘How much cover do I need?’ Research shows that 79% of commercial properties are underinsured.¹

Often, business owners focus on the market value of their commercial property rather than the full rebuild cost. Your insurance policy should be based on the rebuild cost. This is the amount it would take to completely rebuild your property from the ground up. This includes materials, labour, and any associated fees. Relying only on market value can cause underinsurance because market changes don’t show the true cost of rebuilding.

Ensuring Your Sum Insured Matches Rebuild Costs

An up-to-date valuation can prevent underinsurance by giving you a more accurate sum insured. Regular valuations are key as costs for materials and labour can change over time. Many online calculators can give you a quick estimate, but it’s advisable to have a professional valuation for a more precise assessment.

Calculating the Total Value of Contents

Contents insurance is equally important. Take the time to calculate the total value of your business’s contents, including furniture, equipment, and stock. This isn’t just about the value of items today but their replacement cost if they’re lost or damaged. Skimping on contents cover might save you a few pounds on premiums, but it could cost you much more if you need to replace everything unexpectedly.

Protecting Against Business Interruptions

Another aspect to consider is business interruption insurance. If an unexpected event disrupts your operations, this protection can help cover the revenue you lose while getting back on track. This type of insurance is often overlooked but can be crucial in ensuring your business survives unexpected downtime.

Understanding the Average Clause

It’s also essential to understand the average clause in your insurance policy. The average clause applies if the sum insured is less than the total value of your assets. For example, if you insure your property for half of its rebuild cost, any claims you make may only be paid at 50%. This means you would be responsible for covering the rest. This can be a costly oversight, especially for small businesses.

Meeting Mortgage Lender Insurance Requirements

If you’re financing your property, be aware that your mortgage lender may have specific insurance requirements. Many lenders need buildings insurance that covers the full rebuild cost to protect their investment. Review your lender’s requirements to ensure you meet them, as underinsuring could impact your loan.

Taking Steps to Protect Your Business

Taking the time to assess your insurance cover thoroughly can save your business from financial hardship. It's a good idea to talk to an insurance professional who can help assess your business's risks and needs. Remember, online calculators can help, but a full insurance assessment is usually the best way to be sure you’re properly insured.

In short, being fully insured might cost a little more each month, but it’s a small price for peace of mind and the long-term security of your business. With the right insurance cover, you can focus on running and growing your business, knowing it’s safe from unexpected events.

Why not take advantage of our free business insurance check to ensure you have the correct protection?

Sources

1.  rebuildcostassessment.pdf