Business Surgery: Adequate insurance policy limits are vital
When insuring property it is crucial that for buildings the sum insured reflects the full rebuilding cost including provision for architects’ fees and demolition and site clearance.
Many businesses fall into the trap of stating a property’s market value which can often have little resemblance to the rebuilding cost.
With business contents the correct figure to insure should be whatever the replacement cost of the business contents may be while for stock, the correct basis of valuation should be on the cost of the stock to you rather than what you might sell it for. Whilst the chances of a total loss scenario may be remote, your insurers however do expect you to insure for the full value of your buildings, business contents and stock and, in the event of a partial loss, if they feel you are underinsured they can and often do settle claims by reducing the amount claimed by the proportion of under insurance.
To give an example, if a business owner has stock valued at £100,000 but only insures it for £75,000 then in the event of a loss of £10,000 insurers would be within their rights to pay just £7,500 following the application of average.
Business Interruption cover is also something that should be given careful consideration.
Policies usually cover for ‘Loss of Gross Profits’ and when setting these it is important not only to fully estimate what the figure should be but also the indemnity period.
Many business owners underestimate how long it would take for their business to fully recover following a serious catastrophe. It is also vital for businesses to have enough protection against third party claims. Historically Public Liability insurers used to issue policies with limits of indemnity of either £1 million or £2 million. Increasingly £5,000,000 is now the norm and increasingly many businesses are moving towards higher limits as the levels of awards being made to third parties and the cost of defending claims increase.
Remember, you’re not just buying cover against claims for damage to property, you’re also buying cover against potential death/injury claims. It is often not much more expensive to buy higher levels of cover. To ensure that your business is adequately protected we would recommend regular reviews of cover limits and your usual insurance advisor would be able to help you with this.