Insurance - Are you covered?

Insurance is something we all have in the hope that we never need it - but how sure are you that your insurance cover is right for your business - are you really covered for all eventualities?

Although we hope disaster never strikes us, it is no good acting like an ostrich and sticking our heads in the sand - at the end of the day avoiding the issue won’t help!

There are two main types of insurance: commercial and personal.

Commercial

Good, quality commercial insurance will cover you for fire, flood, explosion and theft - basically any event that puts your business at risk. However this tale doesn’t end once you buy your insurance - your insurance has to be managed, like any other aspect of your business. You need to review your cover annually, check what you are covered for, ensure that your premiums are always paid, and that the policy extensions are adequate. Let’s look at them one by one.

Buildings

Did you know your buildings insurance should be set at the cost of rebuilding the premises, including site clearance and any architects fees - not the market value of the property? As the land often comprises a significant proportion of the market value, particularly in London and the South, the cost of rebuilding may be significantly less than the market value.

If your premises are of a standard construction, you can calculate out your cover from the rule of thumb - £80-£90 per square foot - don’t forget to measure upper floors too. However, if your premises are of a non-standard construction, for example a listed building, it is wise to check the level of cover required with a professional surveyor.

In addition, are your premises freehold or leasehold? If freehold then the responsibility for insurance is yours. If leasehold you need to check your responsibilities under the lease - there is no standard lease agreement so this can vary - if insurance is the landlord’s responsibility, ask for a full copy of the details to check that he has adequate cover.

Stock

Make sure you are covered to the value of your stock for a twelve month period. If your business is expanding then the stock level will naturally increase, so you need to allow for this and also account for peak times of the year. Most policies now include automatic increases for seasonal peaks, such as Easter and Christmas. However, if you are located in a holiday area your peak may be August, so allow for that.

Fixtures and Fittings

This covers computers, tills, shelving units and other equipment. You should be covered for the replacement value (for a standard pharmacy the minimum cover should be £30,000) and this should be reviewed from time to time. Indemnity cover is cheaper but you will only be reimbursed for the written down value of the equipment - and if your fittings are 10 years old, reimbursement will be on the basis of the value of 10 year old fixtures and fittings!

Extensions

Check your insurance to make sure you are adequately covered for extensions such as cash, glass repairs, goods in transit, book debts and prescriptions lost. You will also need to ensure you have liability cover - both public and employers. Most policies will include cover at a standard level which you can increase if required.

Business Interruption

To be on the safe side, make sure you are covered for loss of profit for up to 24 months (two years anticipated profit). Check how your insurance company calculates this and that you are happy with the figure. This leads us on to looking at insurance levels as a whole.

Insurance Levels

It is crucial you check you are not underinsured. In the event of a claim, you will only receive payment to the pro rata value of the insurance held. For example, if you are twenty percent underinsured and you make a small claim against your insurance, you will receive payment minus twenty percent of the value of the claim. So, opting for a lower level of insurance can turn out to be a false economy.

Premium levels are set by the location, amount insured and your claims history. If you are looking to reduce your premium levels, it is tempting to reduce your cover, but there are other ways to reduce the cost. First, check your excess; premiums can be reduced by voluntarily increasing the excess to a higher figure.

Another way to possibly reduce payments is through increasing the shop security. Improving the security above the level stipulated by the insurance company can provide discounts. Sometimes the insurance company will contribute towards upgrading security to a minimum standard.

Personal Insurance

In addition to commercial insurance, as an independent community pharmacist it is also crucial you have adequate life assurance for yourself, which will cover the repayments of your business loan in the event of sudden death. There are two main types of cover:

Reducing term

Cover is taken out for the period of the loan. As the loan reduces, so the insurance cover reduces, and in the event of sudden death, the loan will be paid off. However, ensure that the insurance cover will reduce at the same rate as the loan.

Level term

Cover is usually taken out for the period of the loan, but it could be for any period, and in the event of sudden death the loan will be paid off. Any surplus will be available to repay other liabilities or for the benefit of your surviving spouse/family.

In both instances, if the insured event doesn’t happen, (you don’t die!), then the policy lapses at the end of the term.

It is also worthwhile considering key man insurance, permanent health insurance and locum cover insurance, because the risk is not always on yourself or on you dying:

Key man insurance - like level term assurance this is a policy on the life of a key individual to the business, for example if you own the business but a partner runs the business day-to-day, you may want to insure their life.

Permanent health insurance - this provides a long term income replacement up to a retirement age you select, in the event of a serious accident or illness that prevents you from working.

Locum cover insurance - as the shortage of locums continues, locums are likely to become more expensive. Policies are available (for example we offer one) which will provide locum cover for 26 weeks in the event of an accident and 52 weeks in the event of illness. The premium cost relative to the benefit is low.

At the end of the day, while we do not like to think of the worst happening it is best to confront the issue and ensure you have the best possible cover for yourself and your business - after all, if disaster strikes the last thing you want to deal with is financial pressures as well. So check your insurance today and make sure you have bought peace of mind.