The threat of underinsurance is unfortunately becoming more and more of a reality for Australians, both in their businesses and personal lives. Inflation, economic instability and supply chain issues have all meant it is increasingly less likely to insure for the correct replacement value. So, what is underinsurance, and why should you care about it?
Simply put, underinsurance is when you don’t have enough insurance to cover the replacement value of the items/assets you’re insuring. Therefore, in the event of a claim, you as the business owner will be out of pocket for a portion of the cost. This can occur in two ways:
- The cost of replacement was incorrectly calculated when the policy was first agreed, and you are covered for less than your items/assets are worth
- The value of your items/assets has risen since your cover was taken out, meaning you cannot recoup costs with your current policy in the event of a claim
For small business owners, and tradies, underinsurance can have severe consequences. In the unlikely case of a claim, through either theft, fire, damage or another type of loss, your cover does not work as intended. As a result, you alone are responsible for the cost.
In some cases, you may have prepared well financially, and can continue trading. However, in the majority of cases, your business is irreparably damaged. For those who rely on their business or income to support others, i.e. family, this outcome also extends to them.
So, let’s dive into specifics, and see how this issue impacts tradies in Australia. As a tradie, you are most likely to be underinsured in the following three policy areas:
Commercial property has become the policy area threatened the most by underinsurance, as replacement and rebuilding costs have inflated sharply. Global supply chain disruptions and steep inflation due to high demand has caused buildings materials such as timber, glass and steel products to be much more expensive than last year.
For those who own commercial properties and factories, or want to cover the contents / stock in your factory, it may mean the sum you have insured the premises, contents and stock for is no longer able to cover rebuilding costs.
Many tradies rely on their personal Ute, van or car to take them to and from sites. Commercial vehicle insurance protects your vehicle and all accessories when it has been damaged or stolen, allowing your business to continue in the meantime, and protecting you from replacement or mending costs. However, it is prone to underinsurance when you do not accurately assess the market value of your vehicle and all accessories.
Whether a chippy, sparky, or plumber, your tools are a vital aspect of your trade. Depending on their use, they can range from relatively inexpensive to upwards of thousands. Theft of your tools can potentially bring your business to a standstill, not to mention the costs to replace them.
Tools insurance provides a backstop in case of theft, in order to keep your business running smoothly and improve financial stability. Therefore, it is vital you accurately assess the replacement cost of your tools before taking out cover to avoid being underinsured.
Although the threat of underinsurance is indeed real, there is some good news. It is manageable and preventable with the right knowledge and the right planning. To make sure you and your business are prepared in the event of a loss and claim, it is vital you correctly assess the value of your items and assets when taking out cover. This is especially important for your tools, vehicle, accessories and any commercial property/contents you may own.
There are many ways to do this, including various free online calculators which can tell you how much specific items cost to replace within your building, as well as the premises themselves.
Let’s talk! There are 3 easy ways to find the right cover for tradies:
- Call 1300 540 156 to speak to our dedicated tradie broker team
- Fill out our online Contact Our Experts form
- Go online and fill out the Quote form
Disclaimer: You should consider if the insurance is suitable for you and read the Product Disclosure Statement (PDS), Financial Services Guide (FSG) and policy wording before making a decision to acquire insurance. Please ask us for more details before we provide you with our services. Our FSG is available on our website.