Are Your Sums Insured and Liability Limits High Enough?

• Adroit Insurance and Risk
• - August 5, 2026

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Most business owners know they need insurance. Fewer stop to ask whether the amount they are insured for is actually enough. It is one of the most common and costly gaps in business protection, and it usually stays hidden until a claim is made.

Your sum insured is the most your insurer will pay for a claim. Your liability limit caps what they will pay if someone makes a claim against you. If either figure is set too low, you carry the shortfall yourself, on top of any legal costs.

Most property policies require the sum insured to reflect the full cost of replacement. Insure for less, and the average clause can apply. In simple terms, if you insure for half of what something is worth, the insurer can pay only half of your claim.

Take a factory insured for $700,000 that is damaged, with a $1 million rebuild cost. That is already a $300,000 shortfall. But because it was underinsured, the average clause could cut the settlement to around $612,500, leaving an even bigger gap. Underinsurance can hurt you twice.

Bigger clients are tightening what they expect from suppliers. Head contractors increasingly want up to $20 million in public liability, and major clients may require $10 million in professional indemnity before signing. If a claim exceeds your limit, you pay the rest.

A useful guide is to carry professional indemnity cover of at least two to three times the value of your largest contract. Higher limits cost more, but if they are the difference between winning a major contract or being shut out of it, the extra premium is usually money well spent.

Even correct figures rarely stay that way. Inflation has pushed up building, labour and parts costs, so machinery insured for $100,000 two years ago might cost $130,000 to replace today. Business growth, new equipment, higher stock and larger contracts all change your exposure too. Business interruption cover is especially easy to under-set, as it needs to cover lost profit plus fixed costs for the full time it takes to recover.

• Update your asset list for buildings, plant, equipment, stock and contents.

• Recalculate business interruption cover on current revenue and costs, and check the indemnity period is long enough (recovery can take 18 to 24 months).

• Review public liability and professional indemnity limits against your current contracts and what clients require.

• Consider a professional valuation for commercial property and machinery every couple of years.

Need help reviewing your cover?

Your sums insured and liability limits should match the way your business operates today, not the way it looked a few years ago. Speak with your Risk Adviser to review your policies and identify any gaps before a claim brings them to light.

General advice warning: The information provided is general advice only. You should consider whether it is appropriate for your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant Product Disclosure Statement before making any decision to purchase a financial product.