We need to talk about…Underinsurance

Most business owners get insurance, breathe a sigh of relief, and move on. It feels like a task ticked off the list, and technically, it is. But having a policy doesn’t always mean you’re properly covered.

Underinsurance happens when your cover doesn’t match the real value of your business, equipment, or potential liabilities. And it’s more common than you might think. One small oversight could potentially lead to a huge payout gap when you need it.

What is underinsurance, exactly?

Underinsurance happens when the amount you’re covered for is less than what it would actually cost to repair, rebuild or replace the loss.

For example, your policy only covers $60,000, but your business contents are worth $100,000. If disaster strikes, you may only get a partial payout and be left footing the rest of the bill.

Ever heard of the underinsurance clause?

It’s a clause written into many insurance policies. But many small business owners don’t realise how it works, or how much it could cost them.

To put it simply, if don’t insure your property or assets for their full value, your insurer may have the right to reduce your claim payout. Even if the claim itself is smaller than the amount you’re covered for.

Here’s how it works.

Say your stock is worth $100,000, but you only insure it for $50,000. A fire breaks out and causes $40,000 worth of damage. You might expect your insurer to cover the full loss. After all, it’s under the $50,000 sum insured.

But this is when the underinsurance clause might kick in, which may allow your insurer to only cover a portion of the claim after conducting a review by a claims adjustor. If you are not properly covered, you then may have to cover the rest out of pocket.

Why underinsurance happens

Running a business means juggling a hundred things at once, and insurance rarely makes the top of the list. Many business owners buy a policy when they’re starting out and don’t think about it again. Years go by, the business grows, and suddenly the original cover doesn’t match the actual value of the business it insures.

Others try to save on premiums by choosing lower cover amounts. What they don’t realise is that could also mean a smaller payout if something goes wrong.

And then there might be the perception that worse-case scenarios won’t happen. Fires, theft or third-party injuries often feel like far-off possibilities. Until they’re not.

How to avoid being underinsured

The good news? Avoiding underinsurance doesn’t have to be complicated. It just takes a little consistent attention.

Make it a habit to review your insurance at least once a year. This is especially important if your business undergoes notable changes, like renovations, upgrades, or new hires.

When it comes to valuing your assets, resist the urge to guesstimate it. If you’re not sure how much it would cost to rebuild your premises or replace your tools, it might be worth getting a professional to assess the value of your business and its assets.

Also, be clear on what your policy actually covers. Limits, exclusions, and excesses can all affect your payout in a claim. The more you understand about your limits, the better decisions you can make about your cover. Is something feels unclear, get in touch with your insurance provider to break it down.

It only takes a few minutes now to save you thousands later

Underinsurance doesn’t care how busy you are, how tight your budget is, or whether you meant to update your policy last year. If your cover falls short, your claims payout could too. But avoiding underinsurance is easy when you have the right support.

With BizCover, you can compare multiple quotes from top Australia insurers, choose your policy and get covered in just a few minutes. It’s easy, affordable and made for time-poor business owners who don’t want to deal with insurance admin.

Take a few minutes today to review your cover with BizCover. You’ll thank yourself later.

This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the Product Disclosure Statement or policy wording. Target Market Determination can also be found on our website as well.

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