Business Owners: How the under-insurance trap could get you!

Are you running a small or medium enterprise? And are you worried you might be under-insured? Here’s 5 common problems we see all too often that could de-rail your success…

One in seven SMEs worry they might be under-insured and one in 10 claimed to have no cover at all, according to a survey of 850 SMEs by CGU Insurance.

These kinds of decisions are usually prompted by the need to save time and money in the short-term but result in significant consequences and losses for business owners down the track.

Common traps are:

  1. Cover does not reflect the true replacement value of stock, equipment or buildings.

A business owner might choose to lower their premium by insuring for less than the replacement value OR fail to review their cover when new equipment or products are introduced. Either way they are left out of pocket come claim time.

  1. Overlooking business interruption cover and not setting an appropriate indemnity period.

In the CGU survey, 81 per cent of SMEs admitted that an unforeseen business disruption would have a severe impact on their business. And many of those who were covered, had an insufficient indemnity period, which is the amount of time the insurance policy will pay for the shortfall in profit.

  1. Not considering ALL the risks.

Many business owners feel confident they are adequately covered just by taking out compulsory cover, like tradies who buy liability cover to work on a customer’s premises. But many overlook or choose to ignore the risks they face without business interruption, burglary, employee dishonesty, tax audit or directors and officers liability insurance. These products protect the cashflow and often the ability to continue doing business.

  1. Failure to renew

It’s not uncommon for smaller businesses and tradesmen to cancel their liability insurance when they are between contracts to reduce premiums. But once they’re back on the job, they neglect to reactivate it leaving them open to lengthy court cases and significant legal costs in the event of an incident.

  1. Too much optimism

Optimism is a wonderful Aussie trait but too much of it when assessing the risks that could potentially ruin your business is a dangerous thing. Consider all risks including fire, burglary, machinery breakdown or even someone injuring themselves at your premises. Saving a few hundred dollars now could lead to losses down the track that run well into the thousands.