75% of US businesses are underinsured, and in many cases, business owners are not aware of their lack of coverage until after a loss has occurred. For too many, that means rebuilding or getting operations fully back in order may cost hundreds of thousands of dollars beyond what insurance will pay. That is why it is critical for businesses to reevaluate and update the values of their insurance policies regularly.
The goal of insurance is to bring clients back to where they were before a loss. Underinsuring a building or property runs counter to that goal. To avoid this problem, business owners should evaluate their exposures as they stand today by assessing their total insured value and comparing those figures to their current insurance limits. It is an aspect of any business that needs to be regularly maintained, reevaluated, and adjusted accordingly – particularly in today’s economic climate.
One of the most common mistakes a business owner can make during an evaluation is guessing or “ballparking” the value of something. It is critical that evaluations are done with a full picture of the business in mind including an accurate assessment of the exposures presented at each of the business’s locations.
It is recommended that 80% of your property or equipment value is insured in order to avoid excessive replacement costs in the event of a loss occurrence. Considering different factors such as fluctuating lumber prices and the increase in catastrophic weather events, further amplifies the importance of maintaining and adjusting the value of an operation’s risk exposure to correspond with the adequate insurance coverage needed to properly protect your business.
Consider the following when reviewing whether your business is insured to value:
- Property Coverage: Examining the value of your operations property and buildings should be reviewed and updated regularly in compliance with market comparisons. Talk to your insurer to arrange an appraisal when considering updating the valuation your operations.
- Inventory Coverage: Inventory is always susceptible to loss in the lumber and building material industry. Coverages are based on the value of goods and are subject to change with economic trends. It is essential to continuously ensure that inventory is adequately covered especially when the value of inventory is on the rise, like in recent years. PLM provides a stock reporting form that allows business owners to report lumber and other inventory so the insured can keep limits at adequate levels.
- Business Income Coverage: Policyholders are provided coverage that reimburses their business for lost income caused by a covered loss. This allows companies to post their net profit numbers as if there had been no interruptions at all and to continue operations in the aftermath of a loss to their prior state. It is crucial for a business to complete their business income worksheet prior to any loss, this includes documentation of the following:
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- Income
- Expenses
- Limits of Insurance
- Seasonal Sales & Sales Growth
- Long Term Damages
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Ensuring there is enough insurance to cover a business’s real inventory and operations may seem obvious, but it can be easy to overlook and can have serious financial consequences. The best way to have peace of mind when it comes to making sure your business is insured to its current value is to consult with your broker or with your insurer. PLM can help with this process by providing assistance with comprehensive evaluations of your business’s unique exposures. For more information to better protect and value your business operations, contact your local Business Development Representative or PLM Customer Service at custserv@plmins.com or at 800-752-1895.
