In general, people tend to be under insured. This means that if they experience a loss to their business they would not have adequate coverage to replace or rebuild their business to the state it was in before the loss occurred. The process will require forethought and research…but why pay for insurance if the valuation is not correct to replace your home or business? Check out these top points for how calculating the right coverage works. Because, nope!…..we don’t just pick random numbers.
How is property valued?
On most forms, coverage is either valued on a replacement cost basis or an actual cash value basis. Replacement cost is defined as the cost to replace the property with materials of like kind and quality. Actual cash value is the replacement cost less actual physical depreciation.
The limit of coverage you select serves as the maximum amount to be paid in the event of a loss. In general, the insurance company has the option of repairing or replacing your property, subject to the limit of coverage for that property.
Selecting an appropriate limit of coverage for your building is relatively straightforward. “Building Coverage: is defined as the cost to rebuild your structure. ”Building” is typically defined as the building or structure, as well as completed additions, fixtures,permanently installed machinery and equipment, and personal property that are used to maintain or service the building. To determine this, we look at features such as square footage, building construction, foundation type and updates to the roof, electrical systems, etc.
If you are a landlord, you must also address the issue of tenant improvements, regardless of whether you or the tenant paid for them. Either way, these are considered part of the building.
Many tenants don’t think that they need building coverage since they don’t own the building. However, any build-outs or changes that you have done to the building will not be covered without building coverage on your policy. This goes not only for the building insurance but also for FLOOD insurance coverage as well.
Business Personal Property
Business personal property includes things such as furniture, fixtures, machinery, equipment, stock, and leased personal property that you have a contractual responsibility to insure.
Coverage also extends to any other personal property owned by you and used in your business. Coverage is provided for labor, materials, or services that are furnished or arranged by you on personal property of others, and finally, it extends to your use interest as a tenant in your improvements and betterments (also called “buildouts”).
Business Interruption Insurance
In the event of direct damage to your premises, you might suffer a business income loss. Business income insurance, known alternatively as business interruption or time element coverage, covers you for your reduction in net income, plus your continuing operating expenses, including payroll and business expenses (the power and water bill don’t necessarily stop just because you’re not up and running).
If you have multiple locations, a blanket limit of coverage should be considered. With blanket coverage, a single limit of liability will apply for all types of property at all locations covered by the policy. If, for example, you had four locations, all with $2 million of business personal property, you could select a blanket limit of $8 million. In the event of a catastrophe at any one location, you would have up to $8 million for that specific location. Blanket limits can also be helpful in situations where inventory is moved between two or more locations.
Have more questions? Give me a call today and ask for our complimentary Choice Insurance Business Review I’ll look through your current policy, find any gaps in coverage, offer multiple solutions for closing those gaps and answer any questions you may have. You’ve worked too hard to build your business. Why risk losing it because you didn’t have the right insurance? Good planning is just good business.
Kelley Carter, CPIA
The Choice Insurance Agency
The Choice Insurance Agency’s mission is to help you get from where you are to where you want to be financially by planning, achieving your plan and protecting your plan from unexpected events. In the process, our goal is to deliver insurance services in a manner that exceeds your expectations. See what The Choice Insurance Agency can do for you today. Give us a call at 757-416-5100 to speak with one of the licensed, professional members of our team or request a contact here. The Choice Insurance Agency. We’re on YOUR side. 757-416-5100