Imagine paying insurance for years and years thinking you are completely covered, disaster strikes, you are notified the value you nominated for your asset is far too low and only a portion of your asset replacement cost will be covered.
If your asset is valued at less than 80% of its actual value, you are running the gauntlet of being underinsured.
The purpose of insurance is to put you back in the position you were in prior to your loss. Given this common understanding, it may surprise you to know that over 40% of Australian businesses are underinsured, along with 70% of Australian homes.*
Hanrick Curran is pleased to be associated with Ausure Insurance Brokers South East Queensland. Their national strength and local knowledge means our clients can have peace of mind that they are adequately insured at competitive prices.
Here is some further information on how underinsurance is calculated and some tips on how to avoid this predicament.
What is Underinsurance? - Underinsurance is the result of nominating a value for an asset, such as your business contents or your home, that is too low to actually replace this item in the event that it is lost or damaged. This means, when a claim occurs if you are deemed to have insured your assets for less than 80% of it actual value, you will be deemed to be a "part Insurer" of that asset and only receive a portion of your nominated sum insured value.
An example of how an underinsurance claim is calculated, is as follows:
Your sum insured value of your contents is $50,000
True Replacement Value (TRV) is $100,000
80% of TRV is $80,000
Claimed Amount $20,000
Formula used to calculate and underinsurance claim:
($50,000/$80,000) x $20,000 = $12,500 which is the amount paid out by the Insurer.
Should the worst happen and an underinsured asset be damaged or completely lost, there is no capacity under the insurance policy to fully replace the asset, as you have not paid a premium of the "actual" replacement value of that item.
How can you avoid underinsurance?
Essentially, it is up to you to ensure that you have the correct sum insured values in place or conduct regular reviews of your assets to ensure that they are truly accurate.
It makes good business sense to have a plan to avoid underinsurance. Following are three key tips to ensure you are adequately protected:
- Engage an Insurance Broker – Expert advice is critical to avoiding underinsurance and ensuring that you have the right cover in place for your requirements.
- Develop a plan – A structured valuation plan is critical to ensure that the policy provides the type of protection you need and the adequate level of cover. This should be done in consultation with your Broker.
- Choose your valuer carefully – You can choose to do the leg work or have an experienced expert valuer review your work. Ensure your valuer is suitably qualified.
Recently Ausure Principal, Nathan Case, and his team conducted an Insurance Review for one of Hanrick Curran's clients Insurance Portfolio and some alarming issues were found with their portfolio. The major issue that was evident was that they were grossly underinsured for their Business Assets and employee Wage level. Before this review, this would have major repercussions on this business if they had a claim and could have led to the business receiving only a small portion of compensation at the time of the claim.
Thankfully, after the review the Ausure team were able to significantly increase their coverage and reduce the risk of underinsurance to provide them with the piece of mind, that in the event of a claim that they are adequately and accurately insured.
If you do not currently employ an Insurance Broker for your business and personal insurance policies, this is now the time to do so.
The Ausure team are more than happy to assist with you with an obligation free review of your insurances, so please speak with your usual Hanrick Curran Adviser on 07 3218 3900 or contact Nathan directly on 07 3218 396671 to discuss this issue further and provide you some piece of mind when it comes to Insurance.
*Source – Insurance Council of Australia article on underinsured June 2010.