As a service provider, you’re busy providing the needed services to your clients in the field you serve. To do this, you are constantly working to find the needed resources; provide an appropriate level of care to your clients and ensure that no one goes without. With all this work, it can sometimes be pretty easy to lose sight of what would happen if the unforeseeable occurs and your agency suffers a loss.
For many agencies, your single biggest asset is your building. Surprisingly, though, many insurance buyers may not be purchasing adequate coverage to protect against loss. Losses can occur from many sources – a fire; a severe storm; vehicle damage. All can render your location unusable for some period of time.
Insurance is purchased to protect your property from such events. Often, there is confusion over how much insurance to buy. Your property may have a market value that is starkly different from what it would cost to rebuild; your building may have been repurposed from some other occupancy which has an impact on its cost; or, what you have today may not be what you would replace it with if you were to rebuild. These are all factors in your insurance.
Property policies are issued with varying types of valuation clauses. Replacement Cost means the cost to replace your current building with the same (or as close as possible) materials and construction without taking into account for depreciation. Actual Cash Value is Replacement Cost less depreciation based on the age and wear and tear of your current property. Functional Value means replacing with new material that, while not identical to what was damaged, functions the same, i.e., wall board instead of lathe and plaster.
The value of your building is comprised of many parts. Structural material and architectural and engineering costs are factored into the value. The size and shape of your building may impact your costs, as may your geography. Additionally, costs for electrical lines, plumbing, heating and air conditioning must also be factored in.
It is important that you select the right valuation for your building. It is equally important that the value chosen for that valuation be as close as possible to the cost to replace your building as it stands today. Your producer and/or your insurance carrier may be able to provide some assistance with this. Tools are available that will provide estimated replacement costs based on your individual building characteristics, including age, construction, height, condition, occupancy and location. Keep in mind, these are estimates and may not be exact.
A sure way to know the replacement cost for your building is either through a professional appraisal to replace (not to sell), or a contractors estimate to replace your building. Either of these documents will provide the most accurate estimate of the cost to replace your building.
Your property is often your largest, single asset. Choosing the right valuation clause and insuring to the correct limit will ensure that should you suffer a loss to your property, you will be covered adequately and not have any surprises.
Products and services are provided by one or more insurance company subsidiaries of W. R. Berkley Corporation. Not all products and services are available in every jurisdiction, and the precise coverage afforded by any insurer is subject to the actual terms and conditions of the policies as issued.
This information is provided for general educational purposes only. This information is not intended to provide you with legal advice or legal counsel, and is not intended to assure compliance with or complete analysis of any law, rule or regulation. In addition, this information should not be interpreted to imply that all exposures, hazards or loss potentials on any subject or issue were identified or considered. No warranty, or guaranty of accuracy, fitness or suitability, express or implied, is granted with respect to any of the information contained herein.