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What do most people focus on when buying insurance cover?

Price, price, price….

When people focus just on price and not cover, sums assured, service, advice or features they are potentially storing up problems…

A ticking time bomb!!

Time BombStatistics recently issued by one insurer suggest that up to 44% of businesses are underinsured! Are you in that number?

Are you risking your livelihood ?


Have you just not thought carefully about your cover?


So what is underinsurance and what are the risks?

How should you calculate cover levels?

Where can you get advice to help protect your income?

Most insurance is normally arranged on the basis of reinstatement, ie it is designed to put you back to where you were before the claim occurred. So, if you had a factory of 3,000 square feet or stock of £100,000 that is where you should end up when the claim is finished.

However, to do this the insurers need you to insure for the full value of the building or stock or whatever it is you are asking them to cover. If, however, you choose a lower sum assured, whether by design or accident, the insurers are normally allowed to apply an “average clause” which would leave you substantially short.

As an example let’s say the £100,000 of contents is only insured for £50,000 as a cost saving measure. Let’s say you put in a £1,000 claim. The chances are that in most cases it will be paid out with no questions. However, if it’s a more substantial loss and a Loss Adjuster gets involved then they could calculate that you are not insured at the correct level.

Let’s say you have a fire and it’s a total loss. You claim for the full £50,000 you insured for. If the Loss Adjuster calculates that you should have been insured in fact for £100,000 then all you would get from the insured is £25,000! (You were half insured so the insurers apply that to the level of cover in place and hence the substantial reduction)

So Point 1 – Get your sums assured right & if in doubt over estimate or seek professional advice.

How do you calculate sums assured? Most policies are set up on a “New for Old” basis. So ignore what the item to be covered cost you to buy originally what would it cost to buy new today. So if you could purchase the equipment you have at a lower cost today then it is probably safe to insure for that lower sum. Each case is unique so just carry out some research so you know you are sure in your figures and review them regularly. In the case of buildings however different rules apply. It is the cost to reinstate or rebuild that applies.

Let’s say your building costs £100,000 to buy. Normally within that price there is a cost for the land it sits on. Whilst that doesn’t get factored into the rebuilding cost what does come into play is the cost to clear the site (if required) surveyors fees, local authority fees etc, etc. Calculating the cost of rebuilding is not a simple process since it can incorporate simple things like difficult access that can increase the cost someone would make to rebuild the structure.

So Point 2 – Get professional advice when deciding on rebuilding sums assured.


So where can you get advice to talk through these issues and help protect your business and, in turn, your livelihood?

Either email or call us today at 020 8773 2222.


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