How much building insurance is enough?
As a small business owner, you know the importance of preserving your assets. For many business owners, the largest single asset they possess is their building. Whether you occupy the building or operate as a landlord (or both), consider key exposures in your risk-management and insurance planning.
Your business may be ill-prepared to afford damages to your building that lead to major repairs and renovations. Your solution? Adequate property insurance written for the full insurable value of the building.
Policies take many shapes and forms, with coverage ranging from basics such as fire, windstorm and vandalism; to the broadest forms, which cover any loss not specifically limited or excluded. Talk with your Trusted Choice® insurance professional about what policies your business is eligible for and decide what amount of coverage and price best meets your business needs.
While building insurance has become fairly standardized, a key issue often overlooked is the need to establish an adequate limit. Don’t get caught up in accounting terms when determining what is the “full” value of your building. Some businesses, for example, look at price paid. Others look at the cost they are carrying on their books. Neither may have any relationship to reality.
In its simplest terms, “full value” is the total cost to rebuild your building from the ground up at today’s costs. With the increased costs of labor and materials, could you realistically rebuild your current structure for what you have insured it for? And don’t rely on insurance policy provisions, such as “replacement cost,” to automatically provide that much coverage. No matter how broad your policy provisions, you will still not collect more on your claims than the policy limits. Purchase enough insurance coverage to cover the real replacement cost.
While some may argue that insuring to full value is excessive—since the odds of a total loss seem unlikely—you only need consider this: What if you do have a total loss? Can you absorb the loss before you effectively lose the ability to replace your structure? If your goal is to minimize the cost of your premium by taking on some of the risk yourself, have the insurance written to the full value, then choose a higher deductible. You have just limited your risk rather than creating an undetermined risk beyond the bounds of limited coverage.
Or you can agree to pay the nickel and dime claims while maintaining coverage for the big hits. That is the surest path to attractive premium savings. Insurance is best for losses that will risk the survival of your business and finances, not the losses that often amount to only a few hundred dollars.
Once you have the basic safety net in place, you can determine how much you are willing to spend to expand your coverage and add the bells and whistles that represent the difference between “must haves” and “nice additions”.
Once you are satisfied you have determined limits adequate to rebuild your building with its current design and materials, don’t assume your valuation job is finished. While that limit may sound good, is it really what you want or, worse yet, are required to do? For example, what if your building is older, and all new construction in your area must meet new building codes enacted in the past few years. Perhaps all new commercial buildings are required to have sprinkler systems, and yours, having been built long before the requirements was enacted, did not. Now that you have to add a sprinkler system, how much more will it cost to rebuild? Will your current building insurance policy limits cover that additional cost?
The bottom line? Sit down with your Trusted Choice® insurance professional and make certain you have the extensive coverage to respond to the types of claims you consider the greatest threat to your building. Assure yourself the coverage limits are high enough to actually get your building back in shape, repaired and legal with existing building codes.
Once you have accomplished these goals, you are on your way to letting your insurance do what it does best—minimize your financial risks. Meanwhile, with peace of mind, you can do what you do best—run your business.