Top 5 things to watch out for with your Business Insurance
1 . Tools Cover – This cover is one that is commonly misunderstood. Insurers need to know the total value of ALL the tools you own and not just the amount you carry with you at any one time. If your tools are stolen and you are only insuring a proportion, you may not receive the full amount of your loss.
A common reason for claims to be declined is when tools are stolen while they are being stored overnight. Read your policy carefully as some insurers have different requirements. For example, some need to be stored in a guarded security park, a garage, or in a vehicle that is fitted with an alarm or immobiliser. In order to receive a payment for this type of claim make sure your tools are stored in accordance with your policy.
In the event you need to make a claim for tools, you will be asked to provide receipts to validate your claim. If you are unable to provide receipts then a manual or box in which the tools were originally packaged would be sufficient.
2. Business Interruption / Revenue protection – According to the Federation of Small Businesses, 80% of businesses fail after a major incident (like a fire or flood which stops you doing business). Business interruption cover provides income protection if your business suffers a serious loss and can no longer continue to trade. This cover does not apply if you chose to close your business if there is no physical damage to the premises.
In one month, 13% of claims were declined because there was no serious loss that prohibited trading. This does not cover a reduction in work which your business has suffered, but a total trading loss to your business from an insurable incident. (e.g. fire, flood, earthquake).
3. Public Liability – this cover is in place to protect your customers or general members of the public from damage to their property or injuries they sustain as a result of your business activities. For example, if you are doing work to a private house and whilst on the roof drop a hammer which lands on a car. The damage caused to the car would be covered by your public liability insurance.
Our figures for December 2010 show that 39% of the declined claims fell under public liability where policyholders thought they were covered, but were not. This cover does not include injury to your or your employees or damage to your own property – it only covers people from outside your business.
4. Heat Restrictions – A number of claims are declined each year because policyholders didn’t take the necessary precautions when using heat as part of their work. If you use heat when doing your job you should make sure you mention it when you’re buying insurance. There are usually standard safety precautions you will need to take to make sure you are covered. Your policy will explain what these are.
5. Under-insurance - When filling out your application form, it is very important to check the cover limits you select for things such as buildings cover, tools, business equipment, etc. This is because if you have underestimated how much your equipment or premises is worth you may not receive the full value in the event of a claim.
Some insurers will pay out the full amount of cover you selected whilst others will apply what they call ‘average,’ which will be less than the amount covered. For example, if you insure your business equipment for £1,000 but it’s actually worth £2,000, and then you have a break in and all your business equipment is stolen; your insurers realise that you should have bought £2,000 of cover rather than £1,000.
If the insurer doesn’t apply average and agrees to pay the full cover amount you will receive a £1,000 pay out, as that is the total amount of cover you selected.
If the insurer applies average the amount you get will be reduced in proportion to the under insurance. In the above example, the actual value of your equipment was £2,000 and you only insured yourself for £1,000. This means you will only receive a £500 pay out as it’s a proportion of the value. The calculation is displayed below:
Cover Amount Selected (£1,000) x Cover Amount Selected = £500 Pay out
Actual Value Replacement (£2,000) (£1,000)