Manage your insurance policy

Businesses are always changing and growing so don’t leave yourself with insurance cover that isn’t keeping up. Shop around and talk to a number of insurance companies and brokers to discuss what is best for you.

As the costs and the value of your assets change over time, it’s common for:

  • your insurance premium to change over time
  • the insurable value of your assets to go down over time.

For this reason, you may need to re-evaluate your insurance policies to make sure that your business has the right cover.

Insurance contracts don't typically compensate businesses for depreciation. Check out these examples:

  • Sam buys a car for his business for $40,000. The insurance company agrees to insure his car for $40,000 for one year. His insurer thinks the car's useful life is five years, so they depreciate it at a rate of $8,000 per year. So, his insurer only offers to insure his car for $32,000 in the second year.
  • Amanda buys machinery for her business for $220,000. She and her insurer agree to insure it for $200,000 for one year. Her insurer thinks the machinery will wear out and cost $8,000 to remove after 10 years. The insurer depreciates it at a rate of $20,800 per year. In the second year after getting the equipment, Amanda's insurer only offers to insure the equipment for $179,200.

Similarly, most insurers change their offers when market values change. Check out the following examples:

  • Stewart's business buys $150,000 of chairs to sell in his store. He insures his stock. After a year, the market value of chairs drops, so now the chairs are only worth $100,000. His insurer only offers to insure his chairs for $100,000.
  • Lee buys $1,000,000 worth of bricks for his business to sell and insures them for a value of $1,000,000 for theft. Their market value falls to $900,000, so when Lee's contract comes up for renewal, his insurer only offers to insure his bricks for $900,000.

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