There's little doubt that turnover matters when it comes to business. Put simply, it's the gross amount of money your business brings in over a given period, before expenses and tax are deducted.
A rising turnover is usually a good thing. More often than not it's a sign your business is thriving - as long as expenses are kept in check, of course, and you resist the urge to blow all the profits in a spending splurge. Maserati, anyone?
But another effect rising turnover can have (besides putting a smug smile on your face) is on your professional indemnity insurance. Here's how, and what to do about it.
Take it to the max
You don't need to tell your insurance broker every time your turnover increases. You do, however, if it exceeds the maximum allowable turnover for your policy.
It's as simple as it sounds. Your maximum allowable turnover is the upper limit of what you can earn. Reaching that limit doesn't mean you're uninsurable – it just means your cover needs adjusting.
The amount your turnover can increase before your reach your maximum limit depends on your insurer. And the policy you’ve purchased.
The best way to find out is by checking your policy documents. They’ll specify your limit. Your broker will also check at renewal that you haven’t exceeded the limit.
Depending on your occupation, you might be asked about contract amounts as part of your turnover as well. So, be prepared for that.
It’s worth noting that not every insurer has a maximum allowable turnover. If you’re not sure whether yours does, check your policy documents.
If your turnover has increased substantially, your broker will set you a new maximum allowable limit. This usually means how much you pay goes up too.
It can go the other way as well. If your turnover has gone down, the price you pay for your insurance may go down too.
Why your turnover matters for your insurer
Insurers infer that businesses with high turnovers work with a lot of clients. Or, that you take on large clients with expensive contracts. Either of these things increases your risk and the chances of a claim.
It helps to think of it like car mileage. The more miles you do, the more at risk you are of having an accident, right? It’s the same for your turnover.
Insurers need to cover their backs, or they'd go out of business. If their customers pay only a minimum premium but engage in lots of business and expose themselves to greater risk, that throws things out of balance.
Nobody likes paying more than they have to, but in this case, it's necessary.
It’s the reason why, for insurers, turnover is one of the most important factors in pricing your insurance.
Clear and present danger
Don't think insurers will always take pity and turn a blind eye if your turnover's increased and there's a claim against you, either.
They don't like surprises and can take a dim view of anything they're not aware of that changes their position. You don't want to give them any reason to chuck out your claim.
In fact, one of our customers recently had a claim rejected because they didn't update us about a substantial increase in their turnover. We've also seen others who've exceeded their maximum allowable limit affected.
That said, there have been other cases with happier outcomes involving customers who've made honest mistakes about their turnover. The insurers saw these for what they were, genuine errors, and agreed to pay the claims anyway - albeit at a lower level than if the policy had been correct all along.
Both of these examples show why it’s so important to review your turnover every time you renew your insurance. It helps to prevent any tricky situations when a claim arises.
Turnover truisms
The fact is, it's easy to see why your turnover matters. Sticking to the maximum allowable turnover limit is a term of your insurance. Fail to do so, and your insurer is under no obligation to cover you. Should a claim crop up, you could be completely on your own.
If you're in any doubt about your maximum allowable turnover, always check your policy documents. And if you suspect you might have exceeded it, call your insurance broker without delay.
We'll be happy to help with any questions you might have about your turnover or policy limit. Call us on 0845 222 5391.
Image used under license from Shutterstock.
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