What’s it worth?

Calculating the right level of insurance cover for your salon can be confusing. Insurance expert Rosie Barrington explains the sums to do and mistakes to avoid

As a salon owner, you will have set up your premises and bought in lots of new equipment and products so you can present your business at its best. You’ve invested a lot in your salon and if the worst was to happen, it is vital to have the correct level of contents cover.

We often think of total losses when considering insurance and it is easy to think that the sum insured would be the amount you spent on kitting your salon out. This could lead to inaccuracies and result in being overinsured and paying a higher premium than you need to or, worse still, being underinsured and finding you do not have enough cover in the event of a claim.

We have put together some guidance to help you decide on your contents sum insured.

What are contents?

Generally speaking, contents are your kit, equipment, stock, machinery, computers, phones, general contents like towels, desks, massage beds and chairs – essentially, if you tipped your premises upside down then whatever falls out would be contents.

However, sometimes you may also need to include any improvements you have made to the premises as a tenant that you are responsible for under the terms of the lease. This could include things like flooring, partition walls and bathrooms and kitchens if you put them in yourself and the landlord takes no responsibility.

Common mistakes

The most common mistake we see is people underinsuring because they bought their kit or furniture second-hand at a heavily discounted price and declare the sum insured based on that price. Unfortunately, the likelihood of being able to get that same item at that same secondhand price further down the line is pretty small and the true value of the item is what it sells for in the market as new. For example, that massage bed you bought for £100 from eBay may actually cost £1,000 to replace like for like, and you have only insured 10% of its value, leaving you dangerously underinsured.

How to calculate insurance

Insurers are able to reduce claims payments by the degree of underinsurance in some cases, so if the total replacement value of everything in the salon is £20k and you have chosen a sum insured of £5k to keep the premium low, then you have only insured 25% of what you own and insurers would only pay 25% of any claim you make.

We have experienced a claim for £7,000 following water damage from a flat above a salon. There was no damage to treatment machines, the other contents of the salon or the stock but there was damage to ceiling tiles and laminate flooring. The flooring and ceiling were the responsibility of the salon owner and not the landlord, under the terms of the lease agreement.

In this instance, the salon was insured for £10,000 for the stock and contents but following the incident it was apparent that they were 40% underinsured. There was also a claim made for business interruption as the salon couldn’t open for business while the damage was being repaired. So, not only does this show the importance of having insurance but also the importance of choosing the correct level of cover.

Because there was underinsurance, although the salon owner needed £6,800 to pay for the repairs, the claim was only settled at £2,470.

Check your responsibilities

In the above example, you can see that the salon owner was responsible for the flooring and ceiling under the terms of the lease so the policyholder would have needed to allow for their value in the sum insured. However, we have also seen examples where a landlord has the responsibility for this, so it is always best to check.

If you insure for more than you need then you will, of course, pay a higher premium but the dangers of underinsuring are far more damaging to a business. We would always recommend regularly checking your levels of cover to make sure you stay adequately insured.

You should keep a list of the machines you have and the stock and equipment you hold so that if you buy something new it will be easy to spot if your sum insured needs to go up. For example, if you have £20,000 contents sum insured and just bought a £40,000 laser then it’s safe to say that you need to increase your cover.

Rosie Barrington is manager at Professional Beauty Direct, which provides full salon insurance packages to cover your liabilities, contents and staff from as little as £156 per year. 0345 605 8670 / professionalbeauty.co.uk/insurance