Are you properly insured if you change your business plan?

Businesses should never overlook the importance of having a business plan in place and once it has been drafted, it should be constantly refined and amended to reflect any changes in circumstances and direction.  But what many business owners may not realise is that once these plans have been actioned, some of these changes need to be communicated to the business insurance provider as they could have an impact on their policy. 

When you first set up your policy, the insurer will ask a series of questions to help determine which insurance product is right for you.  But over time your business may change and it’s important not to wait until your insurance policy is up for renewal before you tell the insurer.

A business insurance policy provides cover based on the company’s current activities through areas such as product and public liability, which protects your business in the event of the public being injured or their property damaged as a result of your business activities, or for damage or injury caused by defects in your products.  However, should a business diversify into other markets with new products or services, then the insurer needs to be informed.  This is because when the policy is established, the type of cover provided is based on the nature of the business’ trade.  If the company diversifies then it is amending its trade description.  To ensure the business is adequately protected, the insurer needs an accurate description to provide cover for the business they are told about.

In addition, you may be holding more stock if you are extending your product range.  One key area of the policy is business contents, which covers the cost of replacing or repairing your trade contents and stock in the event of an incident such as a fire, malicious damage or theft.  So, consider the value of the contents taking into account all equipment and raise the level that you are covered for.

Changes to a business’ set up also need to be relayed to the insurance provider such as moving or adding additional premises.  This is partly because the building(s) may be composed of a different structure.  When the policy is first established, you will have been asked about the structure and condition of your premises taking into account the materials used for the walls, floors and roof, whether there are any outbuildings, whether there is a fire alarm and what level of security is in place.  The policy will then have been partly based on this criteria, which means that moving premises will alter this information. You’ll also need to provide your insurer with new contact details.

The location of your business will also determine the level of security needed.  If your premises are located in a city or town your business is at a greater risk to crime than if it were based in an urban area.  The insurer will also have specified a ‘minimum level of security’ that you must adhere to.  This will set out what sort of locks or grilles you need on your doors and windows. If you don’t meet this minimum security level and then go on to make a claim, you may find that the insurer won’t pay out. 

Depending on whether the premises you are working from are owned or leased, you may also need to include buildings cover to insure your premises against rebuilding costs should a disaster occur.  In addition, for business owners that may live on the premises, which is common with publicans and shopkeepers, you should also have the option to include household contents cover to protect personal items in a similar way to home insurance.

As well as physical changes to the business, changes in the company structure can also affect the insurance policy.  For example, a company that changes from being a sole trader to a limited firm has altered its legal entity.  When this happens, you have effectively become a completely new company and therefore need a re-quote on the insurance policy.

If, after successful business planning, the company enjoys an increase in its turnover, you also need to inform the insurance company as it can impact on the level of business interruption cover provided.  Business interruption provides protection against loss of income following a disaster, such as a fire or flood with the aim of getting your business back on its feet as quickly as possible.  It provides a financial safety net by covering any reasonable additional expenditure incurred in maintaining the income of your business, so therefore if your turnover increases, you will need a greater level of protection.

As well as increasing your turnover, successful planning may also see your workforce grow.  If you take on extra staff, then it’s important to inform your insurer.  This is because when the policy was first established you should have been asked how many people are employed, which would have formed part of the policy.  If this changes you may invalidate the cover provided by employer’s liability, which is a legal requirement for any business that employs staff.  It covers costs if your business has to pay damages to an employee as a result of injury or disease, caused while working. 

A recent report by the Federation of Small Businesses found that more than half of small businesses have survived the recession by creating new products and services, while one in four has increased profits during the past year.  In addition, 51 per cent plan to continue innovating next year.  With businesses focused on successfully riding out the recession and making changes that can impact on their insurance policy, it’s important the insurer is kept informed to ensure the business is adequately protected.

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