In the current climate we are all looking to save money here and there and you could be fooled into thinking an obvious way of making your Insurance premium cheaper is to reduce your sums insured. However, don’t be fooled - It is really important you are insured for the correct amount. If it is too high you are paying for cover you don’t need, but if you set them too low you will be underinsured in the event of a claim, which could have far more disastrous consequences for you and your business.
We have put together a quick guide to allow you to make an informed decision when considering the levels of sums insured on your policy.
Get it right from day one
Take the time to consider the value of what you are insuring – whether it’s your buildings, contents or business interruption. The cost of reinstatement (replacing anything you’ve suffered a loss on) will increase year on year due to inflation. If your initial estimate is too low the problem will only get worse after each renewal. Here are a few helpful hints to consider when choosing your sums insured;
For Contents: Imagine you had a fire at your salon and lost everything – your stock, equipment, machinery, mirrors, couches, wax pots, towels, etc. plus any improvements you have made to the premises as a tenant (such as installing sinks or specialist lighting). It is easy to think even if you have £10k of items, you could buy replacement equipment second hand or do without some items for a while, so you choose £5k as a sum insured because you think that’s all it will cost you to replace. In the event of a claim insurers would see that you have only insured 50% of the true value of the items you have in the premises and would therefore have only paid 50% of the premium you should have paid. This then entitles the insurer to seek a proportionate remedy and opt to only pay 50% of your claim as a result. Accordingly, the £5k you think you’d get in settlement would actually only be £2,500 to replace £10k of items. The small saving you made on the premium has now resulted in a £7,500 deficit which could mean the difference between being able to trade again or having to close your business.
For Buildings: The Buildings sum insured should be the rebuild cost not the market value or what it would sell for. You will also need to allow for the cost of clearing the site in the event of a total loss e.g. fire and for professional fees (architects and surveyors). The cost of demolition and debris removal can be quite expensive and if you use a big chunk of your sum insured before you have even started to rebuild the premises you could find the policy limit is exhausted with a half built premises, meaning you would have to pay the remainder yourself to finish the rebuild.
Business Interruption: This insurance covers loss in profits and associated costs following an insured event. This can be a major incident such as a fire at your premises meaning you cannot trade from there for months until it is rebuilt or perhaps an incident at a neighbouring premises means the roads have to be closed so you and your customers cannot gain access to the premises and you lose trade as a result. The main issue to consider here is the indemnity period available (the amount of time that the policy will pay out for). Some insurers will only offer 12 months as a way to keep premiums low. What you need to consider is if there was a fire at the premises you would not be able to trade until it is rebuilt so think about the time this could take, but you also need to allow for the knock on effects. For example, if you have insured your business correctly, your insurance policy should pay to put you in a new salon whilst you cannot trade but the nearest available premises could be on the other side of town. Your existing clients may not all be able or willing to travel to the new premises which means you could have reduced takings before you can re-establish a new client base from the alternative premises which can take time. Then, once your old premises has been rebuilt, you will have to leave that client base behind and start all over again as your old client base may have found a new local salon to use in your absence. At Professional Beauty Direct we offer salon insurance with an indemnity period of 24 months to ensure you have enough time to recover your trading profits to the level they were at before the loss occurred. If you think of the time it could take to demolish and rebuild a salon and be trading at the level you were before the loss occurred, it is unlikely a 12 month indemnity period will be enough.
Finally, check your levels of cover throughout every year –
Any of these things could mean your sums insured need to be increased and it’s important you don’t wait for your renewal to raise these limits; just in case something happens before then.
At Professional Beauty Direct we will contact you at each renewal to check if there have been any changes so we can help you be sure your levels of cover are correct but make sure you notify us sooner if anything changes. Our business is to help you protect yours.