If you have purchased property before, you may have come across the term “Insurance to Value”. If you haven’t, then this term can be quite puzzling!
Whether you have already bought some sort of property or you are intending to, understanding insurance and how much insurance is sufficient is something that will affect you one way or the other.
The stark reality is that many persons start the property buying process without enough information or guidance. This article will help you to understand what Insurance to Value is and its importance in business.
What is Insurance to Value?
Insurance to value is a calculation of whether or not a home is satisfactorily insured. The term is commonly used by insurance companies to determine how much is required to cover losses for homeowners, as outlined by their policies.
It is essentially a calculation of the amount of insurance needed to cover the expenses for rebuilding a home or business that is destroyed. Insurers have to bear in mind that the cost to repair or rebuild damaged property will be different than the market value of the property in your area.
This is because there are additional costs for fixing or rebuilding the property. Repairing a business will incur costs that building a new structure will not.
When the original value of the home or business decreases, it is called depreciation. Depreciation is a decrease in the property’s value due to damages, age or other factors, resulting in a decrease in the claim amount being paid out.
Why is Insurance to Value Important in Business?
The question to ask yourself is, “How much insurance is enough?” It is recommended that a business is 100% insured at the replacement cost value.
To find the replacement cost value, you would first need to determine the cost to rebuild if that structure were damaged or destroyed. This information can be gathered through various sources associated with home or business repair and rebuilding.
Once the repair or replacement costs are determined, the value can be calculated for the year (taking into account factors such as inflation). For example, if you have an ITV of 80% on your home or business, this means that the insurance on the property is valued at only 80% of the cost to rebuild the entire structure, should there be any damages or loss.
Less is not always more. It is best to insure your business at 100% of the rebuild or repair cost so that, in the case of loss or damages, the claim amount will be substantially close to the actual value of repairing or rebuilding the property.
Hopefully, this article has brought some insight about what insurance to value is and how it ensures that your business and its contents are adequately insured.
Always try to have full insurance coverage for your business even if it costs more. It is extremely stressful to build a business but it is even more stressful to have to rebuild everything you have worked hard for. Make sure you are covered.
For more information on recovery after damage, please contact us.