What is Stock Insurance?

Even a small business can keep thousands of pounds worth of stock. To help protect against financial disaster if this stock is lost, damaged or stolen, most businesses buy stock coverage as part of their business insurance package. Here's what you need to know about stock insurance including common exclusions and who needs it.

• What is stock insurance?
• What does stock insurance cover?
• Common Exclusions

What is Stock Insurance?

Stock insurance covers your stock if it's lost, stolen or accidentally damaged. For example, stock insurance enables you to replace your stock if it's damaged in a fire or flood or if a thief breaks into your business and steals your inventory. A policy can have the option to either pay for the value of the goods, or possibly to replace the goods.

While stock coverage falls within the realm of business contents insurance, it's usually sold as an extra coverage for an add-on premium—meaning, it is usually not covered as standard under your business contents insurance and you will pay extra for it.

Policy Limit/Sum Insured

When you take out a policy you'll need to estimate the value of your stock—that will form the basis for the coverage limit on your policy. The value to use is the maximum value of the cost of the stock to you on any given day, not reflecting any profits you hope to make.

Some insurers offer extra coverage at seasonal times of the year to reflect fluctuations in stock levels that a business might have throughout the year. For example, a garden centre will hold more stock in the summer; a gift retailer will hold more stock ahead of Christmas. If your insurer doesn't offer cover for seasonal fluctuations (e.g., extra 30% coverage in November through January) then you will need to ensure your limits cover the maximum value of your stock at any point in the year.

Before you go online or call a broker or insurer to get a quote, you'll need a somewhat accurate estimate of the value of your stock.

Do I need stock insurance?

If you hold stock as part of your business, then you probably need stock insurance. Stock can include anything that is going to be sold to customers, even if not yet finished and ready for sale—stock cover can protect your raw materials, works in progress and finished goods. It can also cover stock that your customers have ordered and paid for, and you have yet to deliver (goods in trust). For example:

What Does Stock Insurance Cover?

Stock insurance covers loss, accidental damage or theft of a business's stock resulting from a wide array of risks. Some policies will cover "all risks" but most will list certain covered perils. While a policy will not cover all risks and there will be conditions, the following perils are commonly covered by stock insurance:

Perils

Business owner frequently seek out coverage features to address certain risks to their stock, as shown in the list below. If any of these features seem appropriate for your business needs, be sure to look for get a policy that includes them—although you may need to pay an extra premium for some.

What can be covered

Common Exclusions and Limitations

As with all insurance policies, every stock insurance policy will be subject to a set of terms and conditions. While these will be unique to each policy and insurer, there are some common exclusions to be aware of when it comes to stock insurance.

For example, contents insurance policies typically exclude deterioration of a good due to a change in temperature or as a result of electrical or mechanical breakdown—in other words, frozen food wouldn't be covered. Here are a few common exclusions to know about:

Factors that Affect Stock Insurance Costs

The cost of stock insurance depends primarily on the value of the stock and the perceived risks that something could happen to your stock. As a result, when you apply for a stock insurance quote you'll be asked a series of questions to help the insurer quantify the risk presented by your business.

You may be asked about the construction of your building, security, and local risks of natural disaster like flooding. For example, a building with a higher percentage of flat roof has a higher chance of flooding than a building with a pitched roof. Here are some of the many factors that affect the cost of a business's stock insurance:

If an insurer considers your business to be riskier due to any of the above factors, you are likely to pay more for your stock insurance. Likewise, if your business presents a riskier profile then you might have less choice of insurers, as some will balk from offering you a quote.

After you Buy a Policy

After you've purchased a suitable policy, a business needs to stay on top of their stock situation for insurance purposes. If you break any of the conditions then your policy could be deemed invalid. For example, if your alarm malfunctions and weeks go by without you fixing it, your insurer is not likely to cover any claims of theft.

Or if your business grows and you start holding twice as much stock, your insurer might not reimburse you as you'd expect for a claim (e.g., if you under insure your contents by 50% then the insurer may only pay you 50% of your coverage limit in the event of a valid claim, leaving you well short). So after you've purchased your policy, be sure to stay on top of the following: