In 2015 the Australian Government passed new laws to allow small businesses (with an aggregated turnover of less than $2M) to claim an immediate deduction for the cost of each and every depreciating asset that they purchase costing less than $20,000 up until 30 June 2017.
In this year’s budget (May 2017) the Government raised the threshold to $10M. This means that even more businesses will be taking advantage of this accelerated depreciation incentive, reportedly designed to help smaller-sized businesses invest more, grow more, and employ more people.
96% of all Australian businesses are small businesses, and many of these are already taking advantage of these initiatives.
Are you expanding or upgrading your portfolio of business assets?
The Government’s tax measures are intended to encourage small business owners to spend money, which means that the list of assets owned by any business taking advantage of the scheme is likely to grow in value.
A business owner may not remember to call their insurance broker for an update to their policy whenever a major purchase is made, and several smaller purchases can quickly amount to a considerable increase in the value of business assets needing to be insured.
The prevalence of business under-insurance
Put simply, under-insurance occurs when a policy provides inadequate cover to the policyholder. Sometimes it’s not until there is a theft, fire, or other disaster that the business owner realises their business is under-insured.
According to the major insurer CGU, brokers have estimated that between 70-80% of businesses are under-insured. This means that the majority of businesses could potentially suffer huge losses when trying to rebuild and repair damage done to the business.
For example, if a business property is valued at $1 million on the insurance policy, then the business expands and the property becomes worth $1.5 million, the business is not covered for the appropriate amount. When a catastrophe occurs, the business owner is faced with a major financial discrepancy that is not covered by the policy.
Under-insurance can result in financial burden that is so great the business can’t survive. Policyholders are often under-insured due to improper guidance or planning, but there are steps you can take to avoid underinsuring your assets.
Avoiding business under-insurance
The livelihood of small business owners depends on their businesses and therefore must be protected.
If you have a pro-active insurance broker, like Morgan Insurance Group, your broker will remind you about the need to regularly re-evaluate the value of business assets, and update your policies accordingly.
If you’re on your own with organising business insurance, here are steps you can take to ensure you don’t fall into the under-insurance trap, as suggested by the giant insurance brokerage group, PSC Connect:
- Assess costs accurately: Ensure your insurance cover represents the true value of the business including buildings, equipment and assets. Your policy should also allow for the cost of rebuilding and recovery, which is known as the replacement value. Don’t try to lower your premium by insuring only a percentage of the replacement value as this can cause financial trouble if disaster strikes.
- Keep up-to-date: If you make any improvements in your business, renovations or acquisitions, it’s important to notify your broker or your insurer to ensure that the sum insured is kept up to date.
- Speak to your broker: Accurately valuing your business requires a number of considerations and can be extremely challenging to get right. Your broker specialises in advising businesses of their risk exposure to ensure they are not underinsured.
With new tax advantages, it’s likely that your business will be constantly evolving and growing over the coming years. It’s important that your insurance is reassessed as changes occur, to account for these new developments.
Morgan Insurance Group can help ensure your business is adequately covered so you’ll never have to worry about finding yourself in the difficult position of being under-insured when calamity strikes.
To read more about the Federal Government legislation in relation to accelerated depreciation, visit the ATO website:
Adapted from a story on the PSC Connect website.
Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.
The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.