This calculator is now available on the iPhone!
To install -
click here and follow the instructions.
What happens in the event of a claim:
Please Note that this calculator has been built for the Australian
market. If you wish to use this calculator to illustrate the effects of under insurance
outside of Australia you will need to ensure that the loss amount selected is equal
to or greater than the Sum Insured.
Many people incorrectly believe that if they under insure the only penalty that
they are exposed to is if the claim exceeds the sum insured. This is simply not
Insurance premiums are based on the assumption that the assests or in the case of
business interuption, the insurable gross profit are insured for their full value
at the inception date of the policy. If the assets or insurable gross profit are
not insured for their full value a business insurance policy will typically treat
the policy holder as being a co-insurer for all claims over 5% or 10% of the declared
value. Many insurance policies allow a percentage of tolerance in getting it right.
This is typically 15% (85% co-insurance) or 20% (80% co-insurance). There is no
tolerance with some business interruption cover such as a standard Industrial Special
There are two tests done when a claim occurs. The first is the test for under insurance
and the second is a test against the policy limit.
The following calculation is designed to highlight the penalty that will be imposed
should the sum insured or declared value be under the true value at risk at the
start date of the policy.
Please remember that the test for Under Insurance is the first of two tests. An
insurer will not pay more than the Sum Insured/Limit of Liability regardless of
the amount arrived at by the Under Insurance Test.
Do your own calculation