Having insurance isn’t the answer to protecting your business against claims and liabilities.
Having the right insurance is the answer.
That includes having the correct level of insurance to make sure you’re fully covered.
Being underinsured can have the same negative effects as having no insurance.
And yet 50% of UK businesses are underinsured, according to estimates by Aviva.
In this article, Rigby Financial discuss the risk of underinsuring your business.
Understanding the risks of underinsurance
Underinsurance leaves your business at financial risk from an unexpected event like a fire, theft or natural disaster.
You may have to pay for repairs, replacements, and lost revenue out of your own pocket if your insurance doesn’t cover the full cost of damages.
For example, if you have £500,000 of coverage and damage costs come to £1,000,000, you’re £500,000 underinsured.
Underinsurance can also happen if you don’t update a policy.
For example, if you upgrade to more expensive equipment.
If you don’t change your coverage level, you may not have enough protection.
The consequences of underinsuring your business
Underinsurance can have severe consequences for your business.
For example, if there’s a fire in your property, you may have to pay for repairs if the costs exceed the cover.
This can be an enormous financial burden, especially if you don’t have the funds to cover the costs.
Plus, you won’t be able to claim lost revenue if you have to close while repairs take place.
It can also make it harder to get investment in future.
If investors see underinsurance as poor risk management on your part, they may hesitate to work with you.
Common misconceptions about business insurance
Many businesses underestimate how much insurance they need.
Or they believe policies aren’t needed for certain events.
Some think business interruption coverage isn’t needed, for example.
Or that basic liability insurance covers more than it does.
Understanding exactly what’s covered by a policy (and to what level) is essential to properly protect your business.
The small business insurance misconception
Small businesses are often victims of underinsurance.
This is because owners believe insurance is only for large businesses.
But, even small businesses face significant financial losses due to unexpected events.
Small businesses may be even more vulnerable to the financial impact of underinsurance.
These businesses may not have the same resources to absorb the costs.
Finally, some businesses believe insurance is too expensive and not worth the investment.
But the cost of insurance is often much lower than the potential cost of a loss.
Assessing your business’s insurance needs
As a business owner, it’s important to protect your assets against potential risks.
One way to do this is by getting insurance that meets your business’ needs.
Before you choose a policy, you’ll need to figure out what you need.
Evaluating your business assets
Business assets are the foundation of your company, and it’s essential to protect them.
These assets include your building, equipment, inventory, and intellectual property.
Consider their value and ensure your insurance policy provides adequate coverage.
By doing so, you ensure your assets are fully protected in the event of a loss.
If you upgrade your equipment, be sure to adjust your insurance in line with the increased value.
Identifying potential liabilities
Running a business comes with inherent risks.
And it’s essential to identify potential liabilities.
These liabilities can include accidents on your property, product defects, and lawsuits.
Liability coverage varies based on industry and business type.
Some businesses and industries are riskier than others (so insurance is more expensive).
For example, insurance for construction will be higher than insurance for office workers.
Working with an insurance broker can help you find and invest in the right type and level of cover.
Considering business interruption coverage
Unexpected events can disrupt your business’s operations, resulting in lost revenue and expenses.
Business interruption insurance covers losses if you can’t trade because of an unexpected event.
This is particularly important in areas prone to events like flooding.
Consider the potential impact of an extended closure on your business’s finances.
Choosing the right insurance policies
Once you’ve assessed your business’s insurance needs, you can choose the right policies.
You should consider:
- The type of business insurance you’ll need
- Whether you need custom coverage
- If it’s worth working with an insurance agent or broker
Types of business insurance policies
There are many different types of business insurance policies available.
They include:
- General liability
- Commercial property insurance
- Business interruption coverage
- Professional indemnity insurance
- Cyber insurance
Each policy provides coverage for specific areas of risk.
A professional insurance broker can help you assess which policies will be best for you.
Customising coverage to fit your business
Not every business needs the same insurance.
Your business ‘risk profile’ determines what insurance is best suited for you.
Again, your insurance agent or broker can help you figure out where the risks are in your business.
Working with an insurance agent or broker
An insurance broker can help you save time by putting the right insurance in place.
A professional broker helps you:
- Choose the best policy
- Customise cover to suit your business
- Complete risk management strategies to protect your business
- Reduce the risk from underinsuring your business
Regularly review and update your coverage
Reviewing insurance coverage is crucial to ensure policies are up-to-date and relevant.
At the very least, an annual review can help you identify areas where you may need to adjust coverage.
For example, you may need to adjust coverage if:
- Your business has grown
- You’ve made changes to the company
- You need to keep up with industry trends
- New regulations have come into place in your industry
Don’t get caught out on business insurance
Underinsurance can be a devastating mistake for your business.
By understanding the risks of underinsurance, assessing your business’s insurance needs, choosing the right policies, and regularly reviewing and updating your coverage, you can protect your business from financial losses and cut risk.
Work with an insurance agent or broker to ensure that you have the right coverage in place and stay informed of industry trends and regulations to ensure that your policies remain up-to-date.
