Are You Under-Insured? Learn about the hidden risks of being under-insured and how they can potentially cripple your business!
With the rising cost of living and increasing insurance premiums due to recent severe weather events across Queensland, many businesses are cutting costs wherever possible. One area where businesses may unknowingly put themselves at risk is under-insurance.
It is estimated that as many as 80% of businesses are under-insured – meaning they may not receive the full settlement needed to rebuild or recover after a loss. This shortfall in insurance coverage could leave business owners struggling to cover the gap, putting the survival of their business in jeopardy.
What is Under-Insurance?
Under-insurance occurs when your business is insured for less than its full replacement value.
Most policies require that buildings, business contents, stock, plant, and machinery be insured for their full new-for-old replacement cost. If your sum insured is less than the actual cost of replacement, you may be responsible for covering a portion of the repair or replacement costs.
An Example – if your business property is insured for $500,000, but its actual replacement value is $1,000,000, you are effectively covering only 50% of any claim. In the event of a $100,000 roof damage claim, your insurer may only cover $62,500, leaving you to pay the remaining $37,500 out of pocket.
Some policies allow a margin of error (leeway clause), often 80% of the full replacement cost, but this varies. If your policy has no margin for error, you could be left significantly underinsured and liable for major expenses.
When was the last time you reviewed your insurance policy?
The Impact of Under-Insurance on Business Interruption Coverage
Just as with physical assets, businesses may also be under-insured for Business Interruption Insurance. If your business income sum insured is lower than your actual revenue, you will receive a reduced payout in line with the gap between your actual and insured income. This could seriously impact your ability to recover financially after a disruption.
How Northern Insurance Solutions Can Help Protect Your Business
At Northern Insurance Solutions, we specialise in guiding businesses toward better risk management strategies. We can work with you to make sure your insurance coverage is comprehensive and tailored to your specific needs, ultimately making your business more resilient.
1. Providing expert guidance to accurately calculate your sum insured.
2. Utilising specialised tools to assess replacement values in certain cases.
3. Recommending professional valuers to obtain precise property valuations.
4. Reviewing policy terms and conditions, ensuring you include all necessary costs such as demolition and debris removal, where applicable.
Take Action Today – Review Your Business Insurance Coverage
Don’t wait until disaster strikes to discover that you’re underinsured. Call us at our office on 07 4783 1310 or email info@northerninsurance.com.au to arrange a comprehensive review of your business insurance policy.
Or, simply register for our Policy Review Service online
Northern Insurance Solutions
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General Advice Warning – The information provided in this publication is general advice only and is not tailored to your specific circumstances, financial situation, or needs. We recommend seeking personalised advice before making any decisions.
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