I’m sure you’ve already read about the massive flood that swept through our region causing the loss of lives and millions of dollars of damage. Although we were extremely fortunate in the Upper Hunter, our friends, family and colleagues in the Lower Hunter were not so fortunate.
We know people who have lost their homes; businesses who were severely disrupted for several days as they had no electricity or internet connection (yes – the world did go crazy!) and who now have a massive clean-up bill to restart their lives.
At the same time, Sydney was ravaged by intense storms – traffic and trains were disrupted, volumes of hail that looked like Snow (where was my snowboard when I needed it?!) causing major damage to vehicles. Factories collapsed, whilst businesses with flat roofs were flooded.
Across the board, all of the stories that I have encountered so far have led me to ponder one thing: Insurance.
“Insurance?!?” I hear you cry!
Look, I know it’s a prickly topic at times like this because it is inevitable that we’ll soon begin to hear stories of insurance policies not being paid by big insurance companies.
But you see, there are some really common insurance mistakes that we see creative business make over and over again.
What are these mistakes and how can you avoid making them when it comes to your insurance policies?
3 Common Insurance Mistakes
There are three common insurance mistakes that many small creative businesses get trapped by. They are:
1. Not having the right Insurance when you need it
There are two main types of insurance that many businesses don’t have and we strongly recommend you review are:
a) Business interruption
This covers the loss of income if a business suffers a disaster. Such as flooding, power outage, or god forbid – the internet falls down around our knees. All of these are things that are well and truly outside the control of that small business that causes a major disruption to the ability to function and earn income.
b) Personal Income Protection
If you are a sole trader or operating in a partnership and you also employ others, you will already have workers compensation insurance for your employees. However, this doesn’t cover you for work related injury or extended illness that causes you to be away from your business for several weeks or months causing significant financial strain on both your business and you.
2. Not insuring enough
One of the most common mistakes with insurance is that we create a false sense of security. Early on, we get insurance and feel secure that we’ve covered all bases. But then, we never review it.
Until we need it.
Years can easily go by from when we’ve originally taken out the policy, and our business has grown. Now, we haven’t got enough of the right insurance.
Under insuring occurs if you are covered for less than 90% the cost of replacing / rebuilding your business assets. This is a common pitfall that many small and fast growing businesses fall into.
Some insurers will even penalise you upon claim if you are underinsured. This could mean getting a large bill for unpaid insurance premiums (for the actual dollar value of property to cover) or reduced payouts in proportion to how much you’ve underinsured your business.
If insurers penalise you for this, they must outline it in their policy detail.
3. Not maintaining the right records
Insurance companies often want to see how much and when you paid for items you are claiming, and what the serial numbers are before they’ll pay out a claim. Without having the records easy at hand it is extremely time consuming pulling together all the records they need.
How can you be smarter than the average business owner and avoid these common mistakes?
Review your insurance policies every year
Smart business owners perform an annual review of their insurance policies.
- All of your insurance policies (make a list of when each policy expires, making a note of significant items covered);
- Your most recent Profit & Loss preferably compared to the previous year; and
- Your Balance Sheet.
Sit in your office with fresh eyes and take a look around you. Specifically, you are looking for:
- Changes in your business that will affect your insurance such as
- Moving your office / adding an additional location;
- purchase of expensive equipment;
- hiring more staff;
- Changes in your freight policies (if you send out product);
- Significant growth in your annual turnover (either organically or by gaining a large client);
- For specific equipment noted on your policy (eg computers etc) – ensure you still have them!
- Have you purchased new items this year that need to be updated on your policy?
Tip: You might want to get your Insurance Broker to come visit you near to policy renewal to go through changes in your policies and have them review your premises for changes that might be relevant to your policy.
Align your insurances to the same policy expiry date
If you have several insurance policies that fall due throughout the year, it makes the annual review a chore (and most likely something you won’t really do).
Call your broker or insurance company, and ask to have the policies expire on the same day / month.
Although this might mean you can’t stagger the cost throughout the year, it will mean that you’ll be more likely to thoroughly review your insurance policies on an annual basis. You may even be eligible for a discount by bundling policies!
Maintain the right records
Taking a bit of extra time to when you record your purchases can save a lot of time in the future. Make sure you record the serial number of assets on your Fixed Asset register, and on the purchase invoice as well as keeping a scanned copy on file.
By following these simple steps, you will be well on the way to ensuring you’ve on track to be covered when you need it most.