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5 things you need to know about underinsurance

Insurance claims information following the bushfire devastation has highlighted the widespread problem of underinsurance for homes and businesses.

Figures show the majority of homes and businesses are underinsured, regardless of whether you operate in a regional area or large metro CBD. Underinsurance can greatly increase the risk of a business having to close down if something goes wrong.

Here are 5 of the main things you need to know about underinsurance relating to fire and business interruption for organisations:

1. Underinsurance for domestic and business insurance have very different implications. Whilst domestic policies will pay up to the limit insured, business policies have a co-insurance clause than can mean you have to contribute to a loss.

2. The co-insurance clause operates by applying the percentage you are underinsured by to the claim payout. For example, if your buildings are insured for 50% of their rebuild value and you have a claim, you will likely be paid 50% of the cost of the loss. This is the simplistic view and a broker can explain the full ins and outs of how it would work in your circumstances.

3. Make sure you regularly review your sums insured. The best option is to discuss your limits with your insurance broker. For example, if you are in a fire prone area where building codes have changed, it is likely you need to increase your buildings cover.

4. Don’t choose your sums insured based simply on the cost of the premium. This almost always leads to underinsurance and headaches if something goes wrong.

5. Take out business interruption cover - some 81% of small and medium sized businesses admitted that an unforeseen business disruption would have a severe impact on their business, yet only 27% have Business Interruption insurance.

Don’t forget about underinsurance for business interruption too. This is particularly important if relocating may not be an option as it is likely to take longer than 12 months to rebuild.

Underinsurance is a complex area, so getting good advice from an insurance broker is extremely valuable. Contact us to discuss you own circumstances.

This is general information only, so review the policy documentation and contact us to discuss your individual circumstances.

(Photo by Jen Theodore on Unsplash)

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