13 May 2014
Underinsurance is a problem that is more common in Australia than many people first realise. As the name suggests, it occurs when you take out insufficient insurance cover.
This term can apply to a range of situations, so whether you're taking out business interruption insurance or cover for your property, it's essential to make sure your product is up to the job.
It might be that you have insured certain features for less than they are worth or overlooked key parts of your operations - either of these scenarios constitutes underinsurance.
The risks of underinsurance
There are several risks associated with underinsuring your business, some of which could prove debilitating if they were to ever happen.
If you have to make a large scale claim on your business insurance, you could find that the money you receive in return is insufficient to get your operations back up and running.
For example, if your equipment is insured for $25,000 but is actually worth $75,000, how would you plug the $50,000 gap?
The purpose of insurance is to offer financial protection should the worst ever happen, so ask yourself whether there is any reason to take it out at all if it does not fully cover your claim.
Some businesses may unknowingly underinsure themselves, so make sure you take whatever steps necessary to avoid this situation arising.
Take the time to carry out an accurate calculation of all your assets and ensure this is included when you apply for cover.
Don't assume that this figure will remain applicable year in, year out - each time you purchase new equipment or move to different premises, be sure to check that your insurance will still be sufficient.
The adage of "it's better to be safe than sorry" has never been more relevant than with business insurance!