Under insurance is a term that is used when a person or business doesn’t have enough insurance to cover the cost of loss or damage to the things they own or cover the cost of legal fees if somebody sues them. You are considered to be under insured if your insurance covers less than 80 percent of the value of the items that you are insured for.
While it may be tempting to go for the cheaper insurance to save yourself money, it’s not so good when you need to make a claim. Apart from not receiving enough money to cover the full cost of your loss, if you are significantly under insured, your insurance company can reduce the percentage of your payout by the amount that you are under insured by.
Under insurance occurs when the coverage isn’t set at the business owner’s needs. It can result in reduced claim settlements and significant financial loss for customers. Sometimes, it can even leave brokers at the risk of professional negligence claims.
Infrequent valuations are a major cause of under insurance. As asset values and a business owner’s circumstances change over time, it is essential that you regularly re-evaluate your figures to avoid under insurance.
Under insurance can have a widespread financial impact. Take this example: Your digital marketing agency is damaged in a fire and you are significantly under insured. As a result, you need to source additional funds before you can begin repairs. This delay’s the business’ recovery, causing you to exceed your business interruption policy’s maximum indemnity period before you are fully recovered.
The moral of the story is to never under insure your business with the goal of reducing your insurance premium’s spend. Rather, look at other ways of lowering your overheads, such as outsourcing social media marketing, SEO and other digital marketing services to WSI.
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