Most businesses buy insurance by comparing the sum insured and the premium. Those are the two least informative numbers in the document.
What determines whether you are actually protected is the exclusions, the conditions and the basis of settlement — and each rewards the twenty minutes it takes to read.
| Read first | exclusions |
|---|---|
| Read second | conditions you must meet |
| Read third | basis of settlement |
| Read last | the headline sum insured |
Basis of settlement: the number that matters
Two properties can be insured for the same sum and pay out very differently, because of how loss is measured.
Indemnity basis pays the value of what was lost after deduction for age and wear. A ten-year-old roof is settled as a ten-year-old roof.
Reinstatement basis pays what it costs to replace with new, which is what you actually need in order to reopen.
The difference is large, and it is the reason a business can be insured and still unable to rebuild.
Alongside this sits underinsurance, which is the trap that catches the most businesses. If a property is insured for less than its full replacement value, insurers commonly reduce claims in proportion — including partial claims.
Stated concretely: a building insured for half its true replacement cost may have even a small claim settled at half. The saving on premium is recovered by the insurer at exactly the moment you needed the money.
The consequence is a discipline rather than a purchase: review sums insured annually against current rebuilding costs, which in recent years have risen faster than most businesses updated their policies.
Business interruption: the cover that actually pays the bills
Property cover repairs the building. It does not pay wages, rent or loan instalments during the months you are closed.
Business interruption cover does that, and for most businesses it is the more important of the two — because a business can survive damaged premises but rarely survives a year of fixed costs with no revenue.
Two details decide whether it works:
The indemnity period. This is the maximum time the cover pays for. Businesses routinely select a short period to save premium, then discover that rebuilding, re-equipping and rebuilding customer volume takes longer.
In a region where materials and contractors may be scarce after a widespread event, a longer indemnity period is not a luxury. After a major storm, everyone is rebuilding at once and everything takes longer than it would in isolation.
The trigger. Most policies pay only where interruption follows damage to your own property. If your business closes because a supplier was destroyed, a port was inoperable, or utilities were down without your premises being damaged, cover may not respond unless the policy specifically extends to those situations.
For an island business, that extension is worth asking about specifically.
Exclusions to check in a storm-exposed region
- Named storm deductibles — often expressed as a percentage of the sum insured rather than a fixed amount, which makes them far larger than ordinary excesses
- Flood and storm surge — sometimes excluded or covered separately from wind
- Landslip
- Waiting periods after a policy incepts, and binding restrictions once a storm is named and approaching
- Maintenance conditions — claims can be reduced where damage is attributed to poor upkeep
The first and fourth deserve emphasis. A percentage deductible on a large sum insured can mean the first substantial slice of any storm claim is yours, which changes the arithmetic of whether the cover is worth buying at all — a question worth answering with real numbers rather than assumption.
And insurers typically stop writing or amending cover once a storm is named and forecast to approach. Cover must be arranged before the season, not during it.
Other covers worth considering
- Public liability — injury or damage to third parties; usually essential and often required by landlords and contracts
- Employer's liability — commonly required once you have staff
- Goods in transit and marine cargo — for importers, and it should align with the delivery terms agreed
- Professional indemnity — for advice-based services
- Credit insurance — for large receivables on open account
- Cyber and fraud cover — increasingly relevant given payment-diversion fraud
The transit point connects directly to the article on delivery terms: the term you agree determines the period during which the risk is yours, and cover should match that period exactly. A gap at either end is where uninsured losses happen.
Conditions that void claims
Policies impose obligations on the insured, and breaching them can defeat an otherwise valid claim:
- Notify promptly — often within a specified number of days
- Take reasonable steps to prevent further loss after an event
- Do not admit liability to a third party before the insurer has assessed
- Maintain security measures stated in the policy
- Disclose material facts accurately at inception and at renewal
The last is the most consequential. Non-disclosure of something material can allow an insurer to decline a claim entirely, and the test is not whether you thought it mattered but whether it would have affected the insurer's assessment.
When in doubt, disclose. It is the same principle that governs dealings with customs, tax authorities and immigration offices — volunteered information is handled; discovered information is a problem.
Frequently asked questions
Which part of a policy should be read first?
The exclusions, then the conditions you must meet, then the basis of settlement. The headline sum insured is the least informative figure in the document.
What is underinsurance?
Insuring for less than full replacement value. Insurers commonly reduce claims in proportion — so a property insured at half its value may have even a small claim settled at half.
Why does the indemnity period matter so much?
Because after a widespread event everyone rebuilds at once and everything takes longer. A short period saves premium but can run out while you are still closed.
What most often defeats an otherwise valid claim?
Non-disclosure of a material fact. The test is not whether you thought it mattered but whether it would have affected the insurer's assessment — so when in doubt, disclose.
