IN Norwin Spring 2018 | Page 7

INDUSTRY INSIGHT INSURANCE SPONSORED CONTENT IS YOUR PROPERTY OVER-INSURED? “But I would never be able to sell my building for the amount it’s insured for!” F rom both homeowners and commercial property owners, we in the insurance industry hear this complaint a lot. And, admittedly, the policy your insurance carrier sent you probably doesn’t do much to clarify where the limits listed came from. So, let’s break it down. There are essentially two types of property coverage: Replacement Cost and Actual Cash Value. Knowing which one you have (and what these terms mean) could save you a ton of hassle in the event of a claim. The less expensive of the two options, Actual Cash Value (or ACV), covers your property at a rate that factors in depreciation. As a piece of property gets older, its value goes down. So if an accident were to destroy that property, the amount your insurance carrier would give you to settle that claim lessens with time. ACV for building coverage is rare, but it is how most carriers cover your contents. Televisions, golf clubs, computers, etc. – in the event of a claim, these are all typically valued according to how much it would take to replace them with contents of similar kind and quality, minus depreciation. Needless to say, covering your home or business property itself on such a basis might save you money now in premium payments, but it could end up costing you a lot more if something unfortunate happens. Why? Well, let’s look at Replacement Cost. Replacement Cost, on the other hand, is based simply on the amount it would take to replace what was lost. No depreciation. Just a one-for-one deal. This is how most standard policies cover your home or commercial property. For an example, let’s say a building burns down. While that building might only sell for around $100,000 in the current market, it’s insured on a Replacement Cost basis and it would cost $200,000 to completely rebuild it, brick-by-brick. So, how much is that building covered for? That’s right – $200,000. And you might say to yourself, “I would never rebuild my house if it burnt down – I would just buy another house. Why pay more for Replacement Cost?” Fair question. But, what if the fi re only destroyed the roof of that building? The people living there wouldn’t have much choice—they’d have to get that roof replaced. And with ACV coverage, their claim settlement would take into account the depreciation of that roof before it was destroyed. That means a chunk (maybe even a hefty chunk) of the cost to replace that roof would be coming out of their own pockets. And this is why we always strongly suggest Replacement Cost to our clients. Only in a few very special cases does it make sense to instead go with Actual Cash Value. Here are three simple steps to make sure you’re covered correctly: 1 Check your policy to see which basis your dwelling or commercial property is covered under. Replacement Cost or Actual Cash Value? 2 If Actual Cash Value, ask yourself if you’re comfortable having your building’s covered value decrease with age. 3 If Replacement Cost, make sure the numbers are right. Ask a contractor, or ask us to run a quick, obligation-free calculation for you at RuppFiore.com/ReplacementCostRequest. ◆ ◆ ◆ This Industry Insight was written by CANDICE FIORE SCHAFFER, a licensed insurance agent able to sell all types of insurance products including personal, business, life, and health. Her main focus is on business insurance and the personal insurance for those business owners. Candice has been with Rupp-Fiore Insur ance since 1990. She earned her bachelor’s degree at the University of Pittsburgh and a master’s degree in Risk Management/Insurance from Florida State University. Through the National Alliance of Insurance Education, Candice has also earned the Certifi ed Insurance Counselor (CIC) and Certifi ed Risk Manager (CRM) designations. NORWIN ❘ SPRING 2018 5