One of the biggest and most costly mistakes that Australian business owners can make when arranging their business insurance is underinsurance.
What Is Underinsurance?
Underinsurance may occur when you fail to obtain an adequate level of business insurance to match the true value of your business assets.
Research has shown that only 63% of Australian small to medium sized businesses have adequate insurance, with a further 26% having no form of general insurance at all*.
In most instances, businesses only realise the impacts of being underinsured following an event such as flood or fire, causing serious damage to stock or business premises.
Tips To Avoid Underinsurance
Evaluate and Re-evaluate Your Needs
As your small business grows, it is important to ensure that your insurance needs also grow along with it. Ensure that you are reviewing your insurance requirements at least annually to guarantee you have the correct level of cover to protect your stock, premises and equipment.
As is the case with most small businesses, it is likely that you may acquire new equipment, expand your premises or diversify stock so it is important to account for these changes when reviewing your policy.
Some small businesses have fallen into the trap of insuring only a percentage of their replacement value to cut premium costs however, in disasters which amount to total loss for a business, you face being severely underinsured as a result.
It pays to be honest about your circumstances and accurately account for all of your business assets when arranging insurance as cutting corners or failing to take the time to assess your business needs can result in underinsurance.
Don’t Always Settle for Basic Cover
As a business owner, it can be dangerous to assume ‘it won’t happen to me’ and therefore opt for a basic level of insurance coverage for your business. In most instances, your small business is your livelihood so it is well worth taking out policies that not only meet but exceed your business requirements.
Chasing a lower premium may save you a small amount of money at the time but in the event you are required to claim on your insurance policy, it is likely that the losses you experience will far outweigh the small saving you made on opting for a basic policy with a lower premium.
This is one aspect of your business you should not try to cut corners with. Taking the time to properly assess the actual value of your business assets and securing adequate insurance will protect you from a significant damage bill should an incident occur.
Consider Business Interruption Insurance
For most small businesses, an unforeseen business disruption that prevents them from providing their goods or services for a substantial period of time could create some serious financial implications.
Sit down and thoroughly assess your business’ potential risks and strategies that can be implemented to successfully deal with those risks if they come to fruition. In conjunction with a Business Interruption Insurance policy which assists you in the event your business has been disrupted for a considerable amount of time, your business can avoid underinsurance.
Seek Professional Advice
When considering your business insurance requirements, it is often beneficial to talk to a broker who can provide you with professional advice in relation to your unique business requirements.
There are a vast number of insurance policies available and it’s not always easy to determine which level of cover is right for you so speaking with a broker will assist in ensuring your business is not underinsured.
*Insurance Council of Australia