The consequences of underinsuring your business

Business insurance is a safety net that can protect you and your company in the event a claim is made against you by a member of the public or an employee, and can also protect you from dangers facing your business.

But, while it’s something you hope you’ll never need to use, the last thing you can risk is ending up in a situation where your insurance doesn’t cover the amount of help you need.

It can have a devastating impact on your business to find you’ve underinsured yourself and can leave you facing heavy costs that can seriously damage the viability of your business.

Understanding what we mean by underinsured in business

Being underinsured essentially means you have insured the business at a lower level than the correct sum insured.

It can have a couple of repercussions for your business.

What underinsurance means for your claim


The first, most obvious problem, is that you’ll miss out immediately on the money you’ll lose by not having enough cover.

For example if you take out £25,000 of commercial property insurance to cover your business equipment, but your equipment is actually worth £35,000 to replace, you’ll lose £10,000 if your equipment is damaged or stolen.

But, that’s not the only way you can lose money by being underinsured.

That’s because insurers could actually pay you less than the amount you’re insured for based on the amount you’re underinsured.

For example, if you’re insured for 15% less than the value you should be, your insurer could knock 15% off of the final payout, as well as money you’ll lose because your insurance doesn’t cover the full amount you need in the first place.

Why would you be underinsured?

Oftentimes, being underinsured is simply an oversight or a miscalculation of the amount you’d need if a claim is made against you.

For example taking out professional indemnity insurance and then finding out you’ve taken out less than a client can make a claim for.

Other times, it could be that a business is trying to save money on their premiums, hoping simply having the insurance in place will be enough.

Property and contents insurance is one area a business can find itself with less cover than it needs.

This usually happens when the company basis the insurance cover on the market value of the property rather than the cost to rebuild the property in the event of damage.

The rebuild cost can often be higher than the market value, and this is the cost you should use for your insurance calculation to ensure you get the right level of cover.

Another area you could easily find yourself underinsured for is when it comes to professional indemnity.

Professional indemnity covers you in the case your advice or work product financially damages your client.

However, businesses may underestimate the cost of the mistake they could make, and leave themselves open to being underinsured in the event a client makes a claim.

It’s also possible that a client could make a claim against a business for the failure of an entire project – even if the company in question was only responsible for a part of it.


Getting the right level of business insurance from Rigby Financial

At Rigby Financial we’re an independent insurance broker who can make sure you and your business are fully covered against any claims you need to make, or that are made against you. Also, if you are looking to start a business or to grow your business you can contact Rigby Financial.

We’ll work with you to understand your business and the correct levels of insurance you need so you’re always covered no matter the claim.

Want to find out more about business insurance through Rigby Financial?

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