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What is a sum insured?
Sum insured definition
In the realm of insurance, the term “sum insured” denotes the maximum amount that an insurer will pay in the event of a claim.
Why is there a sum insured?
Risk Management
Sum insured helps set clear boundaries, ensuring both the insurer and the insured know the maximum payout in case of a claim. This helps in assessing and managing risk effectively.
Clarity and Certainty
It provides clarity on the policy terms, making sure there are no grey areas when a claim is made. Knowing this value upfront ensures that there are no unexpected surprises for either party.
Financial Planning
For businesses, knowing the sum insured helps in financial planning. It lets companies understand their potential recovery in case of losses and plan their financial strategies accordingly.
What does your sum insured encompass?
Liability insurance primarily covers the costs associated with claims made against a business due to bodily injuries, property damages, and in some cases, negligence. This can include:
- Medical expenses for injuries that occur on a business’s property or due to its operations.
- Repair or replacement costs for property damage caused by the business.
- Legal defense costs if a lawsuit is brought against the business.
- Settlements or judgment costs if the business is found legally responsible.
How is the sum insured determined?
Asset Valuation: Especially in business insurance, the assets’ value becomes a basis. For instance, if a business insures machinery, its current market value or replacement value can determine the sum insured.
Business Interruption Estimates: For policies that cover business interruptions, the potential loss of income is assessed, which then plays a role in defining the sum insured.
Professional Assessment: Often, especially for complex businesses, professional valuers or risk assessors help in determining an appropriate sum insured.
What are the advantages and disadvantages of a sum insured?
When deciding what sum insured to go for it’s essential to weigh the pros and cons:
Clear Understanding: A defined sum insured ensures both parties understand their obligations and rights.
Financial Security: With a known sum insured, businesses can feel secure about their potential recovery, aiding in continuity plans.
Customisation: Companies can choose a sum insured based on their unique needs and risk assessment.
Underinsurance: If not assessed correctly, businesses can end up with a sum insured less than what they require, leading to potential financial setbacks.
Higher Premiums: Choosing a high sum insured, more than what’s needed, can lead to unnecessarily high premiums.
Periodic Reassessment Needs: The value of assets or business potential can change, requiring periodic reassessments to ensure the sum insured remains relevant.
Common Sum Insured Misunderstandings
Total Value Equals Sum Insured: Many assume their policy’s total value and sum insured are the same. However, the sum insured is the maximum payout, and the total value can include other factors like deductibles.
One-Size-Fits-All: Every business is unique. A sum insured that works for one might not work for another. Tailored assessments are crucial.
Set and Forget: Some businesses think once they set their sum insured, it’s done. Regular revisions are essential for accuracy.
How Can Gerrards Help?
Expertise: At Gerrards, our deep understanding of the New Zealand business landscape ensures that we guide businesses correctly in determining their sum insured.
Tailored Solutions: We don’t believe in one-size-fits-all. Our team provides tailored insurance solutions based on each business’s unique needs.
Continuous Support: Insurance isn’t just about buying a policy. At Gerrards, we offer continuous support, ensuring that as your business evolves, so does your cover.
