The constant pressure of inflation is affecting just about everyone. As a hairdresser – whether you own your own salon, rent a chair, or offer a mobile service – you may be tempted to save costs by reducing your insurance premiums. However, this could end up costing you more money in the long run.
When you try to cut costs on your insurance policies, you could end up being underinsured. Underinsurance occurs when an insurance policy falls short of covering the full value of potential liabilities or replacing your assets. For a hair stylist, this could mean unexpected out-of-pocket expenses due to legal disputes, professional errors while styling a client’s hair, or even physical damage to your salon just to name a few. The consequences of underinsurance can be serious, impacting not just your finances but also your reputation.
The real-world fallout of underinsurance
In September last year, a salon sustained serious damage due to a faulty hot water tank valve. When the defective valve failed to shut off, the premises were flooded and badly damaged.
The salon owner, who was renting the premises, lodged a claim against their Business Insurance Pack policy. This policy included Contents cover for the total amount of $20,000.
However, a loss adjustor was engaged by the insurer to assess the situation and discovered a discrepancy in the insured amount declared. The loss adjustor assessed the total value of the contents was more than $40,000 – much higher than the insured amount. This meant that, because the actual value of the contents was higher than the insured amount, the underinsurance clause in the salon owner’s policy was triggered.
In the end, the damage to the salon owner’s premises (which, being rented, were covered under Contents insurance) and the scope of work needed to repair the building amounted to almost $8,000. The insurer paid a total amount of $4,354 for rectification works, a figure that was calculated based on the underinsurance clause. This meant that the salon owner was out of pocket for nearly half of the needed repairs.
What’s an underinsurance clause?
An underinsurance clause is part of an insurance policy that comes into play if the insured amount is less than the amount needed to fully cover a loss.
Basically, if you insure something for less than its full value, then the underinsurance clause means that the insurance company may only pay a portion of your claim – even if the damage or loss is within the cover limit.
So, in the case of the underinsured salon owner, they were still out of pocket because they had not insured their contents for the correct actual value. They valued their contents at $20,000, despite the fact the true value was more than double this amount.
This, among other reasons, is why it’s important for you to regularly review your insurance policies to make sure you’re properly covered.
3 Steps to check whether you’re underinsured
Making sure that you have the correct level of cover is as simple as reviewing your insurance policies. To check whether you’re underinsured, follow these three steps:
- Conduct a risk assessment, identifying all potential risks and liabilities that are specific to your beauty business.
- Update your property and asset values. You should aim to do this at least on an annual basis. If you’ve purchased new equipment or moved to a different premises, then the value of your property and contents may have changed.
- Finally, review your insurance policies. Evaluate your cover limits and compare them against the potential costs of the risks you’ve identified.
BizCover makes insurance simple for small business owners
As if insurance wasn’t complicated enough – now you’ve just learned that there is such thing as an underinsurance clause. You no doubt have plenty of things on your plate without having to worry about reviewing and buying insurance.
That’s where BizCover can help. Compare multiple insurance quotes from selected leading Australian insurers in minutes to save time and money.
For more information visit www.bizcover.com.au or call 1300 805 821