This could end up costing you a lot more in the long run.
There are a surprising number of businesses both large and small that are drastically under-insured.
Some may genuinely believe that they have insured for the correct amount at the time whilst others may have intentionally left their sums insured low in order to keep premiums to a minimum.
We cannot stress the importance of ensuring that yours Sums Insured in respect of buildings, contents, stock etc are set correctly at the outset and reviewed on a regular basis. Most policies, unless stated otherwise, are on a reinstatement (new for old) basis and therefore you should be insuring for the new replacement value – not what you believe it is worth now.
The reason most policyholders get caught out is because they do not realise that most insurance policies contain an “Average clause”. This means that if you have under-insured, your claim will be reduced proportionately; for example; let’s assume you have insured your business contents for £500,000, when the actual replacement value should be £1,000,000; effectively you are 50% under-insured. You may think “it’s fine, I can replace everything second hand for £500,000”, however, in the event of a claim any settlement will be reduced by 50%. So, if the claim was for £20,000 you would only receive £10,000.
If you suffer a small claim it may not be the end of the world, but in the event of a large or catastrophic loss this could cost you dearly!
Ultimately, it is your responsibility as the policyholder to get the sum insured right as neither your insurer, or broker, is a professional valuer and they do not have a responsibility in this regard. One sure way to guarantee an accurate valuation is to employ the services of a professional valuer.
In the event of a loss to your business, life can be stressful enough without adding to this when you find out you are also significantly under-insured.
By Helen Parsons – Commercial Broking Manager