For the most part, insuring the possessions of your business is much the same as insuring your personal possessions. Simply tot up what they are worth, get a quote, and if you suffer a loss, claim on the policy. But there’s a little more to it than that.
When it comes to the possessions of your business, insurers broadly divide the categories up into three separate areas: buildings, stock and business equipment.
Vehicle insurance is considered completely separate. Usually you can get a policy that covers everything, but it’s worth considering what’s involved in each.
And in these credit-tight times, financial institutions are finding it harder than ever to make any profit out of lending money.
So they’re searching around for something else, and insurance is right at the top of the list. For SMEs, this is fantastic news. The more institutions that want your business, the fiercer the competition. And this will hopefully mean better policies at lower prices.
Banks earn huge commissions from selling insurance to customers – often the bank you have your current account with will offer insurance, even though it is not the company that actually provides it – and these costs, often as much as 30 per cent of the premium, are sure to be passed on.
If you have a mortgage on your property – and in most cases if you have a business lease – this will be a compulsory product.
While the lender retains an interest in your property, it will expect you to protect it.
If your premises are burnt to the ground, repaying the mortgage will be the last thing on your mind, but it will be the first thing on the lender’s agenda.
There is no industry-wide definition of what buildings insurance comprises, but basically it is what you would leave behind if you metaphorically tipped it upside down. So in addition to the walls, windows and roof, this should include fitted kitchens and bathrooms. It should also cover any outbuildings, such as garages or sheds – although you need to inform your insurer of their existence.
Most insurers require you to set an insurable value for your property and this can be where problems arise. The insurable value is not the same as the value of the property – part of that is the land, which you will still own even if there is nothing left on it. This is true even for office blocks, as you still retain the right to use that particular space.
The figure that needs to be insured is the rebuild cost. This is what it would cost to return the property to its existing condition if it were completely destroyed. It’s much less than the value of the property, but it’s almost impossible for
non-insurance specialists to work out themselves. There are so many variables to consider – the type of materials, the location, surrounding buildings and so on.
Insurers nowadays don’t really expect you to put a figure on it. Many insurers nowadays will work out the figure for you, based on the location and type of the property, and how big it is. They will then guarantee to cover any claim if a disaster does take place.
Buildings insurance can be comparatively cheap. The most common causes of insurance claims is crime-related, and most burglars tend not to steal the fixtures and fittings.
What the premises are used for will be key – if you’re just insuring an office, you’re not going to have to pay too much, for example, but if it’s a factory where gas cylinders are kept, or a restaurant – with a high possibility of fire – then you’re going to be paying more. If you have a regular stream of customers coming on to the premises, that will add to the cost, as damage is more likely to happen.
There is also likely to be a higher price if you are the type of business that attracts criminals – your windows are less likely to be broken in a burglary if you are an estate agent compared to a jeweller, for example.
While no-one is going to force you to take it out, only a fool would fore-go the security of contents insurance.
Contents insurance is supposed to cover everything to do with your business that that you use to run it – not what you sell. So computer equipment, fixtures and fittings in a shop, machinery in a factory and so on.
Virtually all contents policies nowadays are written on a ‘new for old’ basis. This means that if you claim for an item that has been lost or irreparably damaged, you will get the replacement value, not what the item was worth before the claim.
But insurance companies don’t like handing out cash to claimants; they believe it encourages fraud. What companies do is attempt to replace the items for you. To save money, they have agreements in place with major retailers to provide them with claimed items. So if, for example, your computer equipment was stolen, the insurer would request a list of the products and would acquire them on your behalf.
This is essentially everything you plan to sell as part of your business – whether it’s the contents of a shop or warehouse, or even the output of your factory. Again, the price of the policy will depend on the value of the stock you typically hold, but also its fragility and its attractiveness to crooks.
Again, jewellers are likely to pay more. It’s not only a good thing from a cost control point of view to maintain as low a base of stock as possible, it’s also going to make it less expensive to insure.
Some insurers don’t insure certain types of business. Restaurants often need specialist cover, as do hairdressers and bookmakers.
Even those that promise to insure all businesses will often load the premiums onto firms they’re not particularly keen on.
So it makes sense to shop around.
If you have any particularly valuable items – the amount depends on the insurer, but check if anything you own is worth more than £1,500 – then these will have to be specified on the policy. You may be required to provide photographs or serial numbers of the items.
Your insurance policy will be priced according to the risk the insurer sees of having to pay out. So anything you can do to protect your business will reduce the cost of the policy. Most of these are security related – installing a burglar alarm or a window locks will lower the premium, for example. Different insurers have different criteria, so it’s worth contacting yours to see where you can make savings.
While it is not always possible most insurers recommend that you take out your buildings and contents insurance together.
By doing so, you could save money because many companies offer discounts for taking out both products. But also, if one company insures both your building and your contents, there is far less chance that in the event of a claim, certain items slip through the net. Most companies have very similar definitions of what constitutes buildings cover and what comes under contents, but if there are any grey areas it could cause a lot of heartache when you least need it.