Insuring Business Equipment and Stock
Commercial property cover protects the equipment and stock a business depends on, and the most common problem is a sum insured that no longer reflects reality.
Replacement cost versus indemnity
Replacement cost pays what it costs to buy new equivalent items today.
Indemnity deducts for age and wear, which on a five-year-old set of equipment is a substantial reduction.
For equipment a business needs to keep operating, replacement cost is generally the appropriate basis, and it costs modestly more.
Setting the sum insured
Total the current replacement cost of everything, not the purchase price or book value.
Include items easily forgotten: hand tools, small equipment, furniture, signage, and anything leased where you are contractually responsible for it.
Underinsurance triggers average in most commercial policies, reducing every claim proportionally including partial ones. This is the single most common cause of disappointing commercial claims.
Stock
Stock values fluctuate, frequently peaking before a busy season.
Insuring at the average leaves you underinsured at the peak, which is precisely when a loss would be most damaging.
Many policies allow a seasonal increase clause, automatically raising the stock sum insured by a percentage during specified months. Where available it is worth having and costs little.
Stock should generally be insured at cost price rather than selling price, since that is what replacing it costs.
Equipment away from the premises
Standard commercial property cover typically applies at the stated premises only.
Portable equipment cover extends it to items in transit, at customer sites and in vehicles, and is essential for anyone working away from a fixed base.
Vehicle-based cover usually carries overnight conditions requiring the vehicle to be secured or emptied.
Business interruption
Covers lost income while you cannot trade following an insured event, and it is what determines whether a serious loss is survivable.
The indemnity period must be long enough to rebuild, re-equip and recover trade, which routinely takes longer than owners estimate. Twelve months is frequently insufficient for anything involving premises reconstruction.
It generally requires physical damage to trigger, a point extensively litigated after widespread closures in 2020.
Practical steps
Maintain an asset register with descriptions, serial numbers, purchase dates and current replacement costs, and photograph everything.
Store it off-site, since a register kept only on the premises burns with them.
Review sums insured annually and after any significant purchase, and tell the insurer about changes to what you do or where you work.
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