Insurance for commercial property owners is crucial as it protects your investment from legal liability and any loss of income you may experience. With that being said, the dangers of underinsurance when it comes to your commercial property can leave you with protection gaps, which can leave you financially liable when you least expect it. 

In the event of a catastrophe, like a fire or a storm, your commercial property can be severely affected. You don’t want to wait until you need to file a claim to realise that you’re not covered for the damage. So, what does underinsuring mean, and how can you avoid it as a landlord?

What Is Underinsurance?

Underinsurance refers to when your insurance policy insures you for less than the cost to repair your property. So, in the event of a claim, your insurance payout may not cover the damages and reconstruction required, meaning you need to pay it out of pocket. 

How Does It Happen?

Underinsurance can happen for a number of reasons. The truth is, understanding your commercial property insurance can be difficult when there are so many terms and details to consider. That’s why we recommend using a broker like Morgan Insurance to help you navigate your insurance and ensure you’re protected. Some of the reasons your policy may leave you underinsured include: 

• Building Cost Inflation: Building costs include labour and material costs, which may have risen significantly since you obtained your policy.
• Ignored Soft Costs: Soft costs are costs that can be incurred outside of construction. They include architectural fees, council approval fees, debris removal and loss of rent. 

• Renovations: If your property has been renovated or upgraded since the last valuation, your insurance won’t be adjusted accordingly.
• Premium Savings: To lower premiums when you obtain your insurance policy, you may have claimed a lower amount, which leaves you unprotected in the long term.

How Is It Dangerous?

The obvious answer is that, as you are underinsured for the total amount you’ll need to get back on your feet, you’ll be left paying for it alone. However, it’s a little more complicated than at first glance. A common misconception is that if you’re underinsured by 50%, then your insurer will only pay the other 50%. This is not the case. 

Actually, your insurer will only pay for the proportion of the loss that you’re underinsured for. 

Here’s an example: 

Replacement Value: $1,000,000

Sum Insured: $800,000 (i.e. 20% underinsured)

Claim Amount: $100,000

Payout: $80,000

 

Avoiding Underinsurance: What To Do

To avoid underinsurance with your insurance policy and ensure that you’re appropriately covered when you most need it, there are a couple of things that you can do. 

• Regular Valuation: Your property is due to change year in, year out, so the best way to stay updated with the true cost of replacing it is by having it regularly valued.
• Review Your Policy: Understand your policy thoroughly with regular reviews to ensure that any cost inflation is accounted for.

• Factor In ALL Costs: Ensure that the sum you’re insured for factors in all your costs (including professional fees, removal costs and a contingency buffer to be safe). 

The Best Thing To Do:

The best thing you can do is contact an insurance broker who can navigate the details of your policy for you to ensure that you’re fully protected in the event of an emergency. Morgan Insurance Brokers are experts in navigating the market and finding an insurance policy that makes sense for your investment. 

It’s normal to be overwhelmed when you’re trying to understand the terms and conditions yourself. That’s what we’re here for. You don’t want to be confused when it’s crunch time. Contact our team today for expert guidance on your commercial property insurance.

Morgan Insurance As Your Partner

We’ll do more than find you a policy that protects you- we’ll review it, negotiate competitive terms and ensure you’re up to speed on what that means for you. When the worst happens, you’ll have enough on your plate without having to worry about your insurance too. We’ll handle it for you. 

Get started with Morgan Insurance today and get in touch.