Insuring to Value
by Alison Neumann

Insuring to Value

If you are a business owner, you know that you are responsible for insuring your business.  What would happen if a fire or other incident occurred and you did not have enough insurance coverage to rebuild?  No one wants to think of worst case scenarios, but if you own a building or property, you will want to insure what you own to value.  Insuring to value refers to the cost to rebuild an identical building from scratch, and that equates to the amount of insurance coverage you would want.  Essentially, it’s the cost to repair or replace what you own.

A big misconception many building and business owners have is thinking that whatever you pay for the building at the time of purchase is the amount of insurance coverage you need.  However, if you got a great deal because the previous owner really wanted to sell or market prices were low, insuring at that value is likely not wise.

Another good point to think about is, would you want to rebuild the exact same building?  Often times, owners would want building updates and different building materials to rebuild.  Due to inflation, the cost of steel and labor has increased significantly over the past decade.  These are some factors owners need to take into account when deciding how much insurance they want on their buildings, and when reviewing their coverage amounts at their annual insurance renewals.

Unfortunately, many building owners are underinsured and uninformed of a possible gap in their coverage.  If that is the case, in the event of a loss the owner would be responsible for a portion of the cost to rebuild. If they lack the funds, rebuilding may not be a feasible option.  Another consideration to take into account is that many insurance carriers require buildings to be insured to value before they agree to write a policy.

If you find yourself questioning the limits you currently have on your buildings, please contact your insurance agent today. Speaking to contractors who have professional knowledge in construction can also be helpful.


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