As a business owner, you hope that you've done the right things when it comes to protecting your company and managing its risks. With the help of your insurance broker, you've made sure that the proper coverages are in place, including the property, liability, equipment breakdown and business interruption products.
Ottawa - October 2, 2012 - As a business owner, you hope that you've done the right things when it comes to protecting your company and managing its risks. With the help of your insurance broker, you've made sure that the proper coverages are in place, including the property, liability, equipment breakdown and business interruption products. But when was the last time that you had a careful look at the total physical value of your business including your building, stock and equipment? If those things are undervalued, the various layers of insurance protection you think you have may not respond the way you want if there’s a loss.
If you take a look near the top of your policy document, you'll likely find the valuation of your total property, stock and equipment. Basically, this is the dollar figure which represents how much you believe it would cost to replace your physical business. That number represents the total value of what property is being insured. But if you allow that number to stagnate and you do not take into account things like inflation or higher property values or increasing reconstruction costs, a little clause in your insurance policy called "co-insurance" might kick in if there is a loss.
Co-insurance basically states that you need to be insured up to a certain percentage of the actual value of your business property (sometimes it is 90 per cent), otherwise you'll be penalized in case of a loss. This clause exists because insurers want their insured’s to have the correct amount of insurance coverage. A mathematical formula is used to determine any potential insurance settlement when being underinsured becomes an issue.
Suppose your property is worth $800,000 but it's only valued at $600,000 on your insurance policy and your policy states a 90 per cent co-insurance clause. Co-insurance reduces your payout depending on how underinsured you are. So in this case, a $20,000 loss would result in a settlement of only $16,666, less your policy deductible. And that is why it is so important to take everything into account and be generous with the numbers when you place a value on your building, stock and equipment.
If you aren’t sure if your current policy reflects the correct property evaluation for your business, take a close look at your numbers now. It’s better to spend some time re-evaluating now rather than suffer the consequences of too little coverage when you really need it.
Presented here is a general article about insurance. The discussion is general in nature, and does not constitute insurance advice. This is not intended to be a description of coverage, and does not include details of the coverage nor the terms, conditions, qualifications, limitations and exclusions applicable. Policies should be reviewed in their entirety and related to your specific operations. Many insurers permit changes (Changes to insurance policies are usually called "endorsements" or "riders") in their limitations or exclusions to match your specific requirements. As insurance advice must be tailored to the specific circumstances of each situation, nothing provided herein should be used as a substitute for the advice of a competent insurance broker. IN NO EVENT WILL RHODES & WILLIAMS LIMITED BE LIABLE FOR ANY DAMAGES WHATSOEVER, INCLUDING SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE INFORMATION PRESENTED IN THIS DOCUMENT.
Lorne Wiebe is a well known former Cornwall broadcaster. Even though he now calls Ottawa his home, he has a special affinity for Cornwall and SD and G. He now works at Rhodes & Williams Insurance Ltd. and partners with the local business community to help them deal with their day to day risks. If you have questions or wish to contact Lorne, you can email him at Lornew@rhodeswilliams.com
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