You may be paying for insurance, but if you’re underinsured, you could be taking a big risk.
In the case of a disaster, you might have to pay the balance between the amount insured and the actual costs. For example, if the cost of replacing your building and contents is $4 million but they are insured for $3 million. In this scenario, if the building were destroyed by fire, you could be $1 million out of pocket.
Even if the cost to repair the damage is less than $3 million, your claim may not be fully reimbursed.
“Many insurance policies include a co-insurance clause,” says Michael White, Broker Technical Manager for Steadfast Group.
“This is triggered if you’re insured for less than the full value of the property. In very broad terms, it reduces the amount of the claim by the percentage by which you’re underinsured.”
So, with the example above, if the damage amounts to $2 million, you may not be reimbursed for the full cost of repairs.
How to find out whether you’re underinsured
To find out whether you have adequate cover, you can check your policy limit, which is the amount you’re covered for.
You can then compare this with the replacement cost of your building or other asset.
The Insurance Council of Australia provides free online calculators that may give you an idea of the replacement value of your property.
“These are just a guide, particularly if your building has any unusual features. A valuer will provide a much more accurate assessment of the value of your building and any other assets such as machinery covered by your policy,” White says.
You can also use AIB’s free online insurance quiz to see if you need to update your policy and we offer a free policy review tool too.
What can you do if you think you’re underinsured?
Your AIB insurance broker can help you to identify everything your business depends on to operate and assist you to find the most appropriate cover.
“Every business is different, and your insurance should be tailored to your needs,” says White. “You need to be sure you’re not left vulnerable in certain areas or paying for cover you don’t need.”
Once you’re fully covered it’s often vital you review your insurance every year.
“Your business is evolving, and replacement costs are changing all the time,” says White. “For instance, a piece of machinery you bought four or five years ago might cost a lot more to replace than you paid, and your insurance needs to reflect that.”
Essential insurance protection
Many small businesses are underinsured by accident. You may have misunderstood what’s needed, miscalculated the value of your assets, or underestimated how much your business has grown.
Or perhaps you’ve simply been so busy that checking your insurance cover slipped down your list of priorities.
It’s understandable, but it could also be disastrous if you don’t realise you’re underinsured until you make a claim.
The risk is you could lose everything you’ve worked so hard for, including your business. For peace of mind, talk to your AIB broker about the best way to ensure you are not underinsured.
Important notice
This article is of a general nature only and does not take into account your specific objectives, financial situation or needs. It is also not financial advice, nor complete, so please discuss the full details with your Steadfast insurance broker as to whether these types of insurance are appropriate for you. Deductibles, exclusions and limits apply. You should consider any relevant Target Market Determination and Product Disclosure Statement in deciding whether to buy or renew these types of insurance. Various insurers issue these types of insurance and cover can differ between insurers.
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Important notice – Steadfast Group Limited ABN 98 073 659 677 and Steadfast Network Brokers
This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
Information is current as at the date the article is written as specified within it but is subject to change. Steadfast Group Ltd and Steadfast Network Brokers make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of Steadfast Group Limited.
