Top Reasons Businesses Underinsure
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Did you know underinsurance won’t just impact your business in the event of a total loss? You may also be penalised if you suffer a partial loss. Let’s say your building is insured for $4 million. During the course of the year you have a fire and suffer a $2 million loss. ‘That’s fine’, you think. ‘I’m covered for $4 million so this shouldn’t be a problem’. Not so fast. The loss adjuster appointed by the insurer asks you how you arrived at the insured values and to validate what was in the area of loss. Without a proper valuation, you’re unable to answer these questions to his satisfaction. His assessment shows that you were underinsured by 50 percent which means that you may only receive 50 percent of the loss. $1 million to replace a $2 million loss! You’re then left to fund the rest.
Click on the infographic or read on to see the top reasons most businesses stay underinsured.
- Adding CPI to last year’s figures
- Basing the increase on real estate market conditions
- Asking the bank, builder, architect, or real estate agent
- Relying on advice from an in-house accountant or engineer
- Referring to building guides
- Adopting book value
- Using financial valuation reports and deducting land value
- Adopting the second-hand purchase price of an asset.