Business owners often have much of
their life and their savings invested
into the properties they own, making it crucial to have the proper insurance coverage. A disaster that results in a partial or
total loss of a property can result in major
debt or bankruptcy for an owner.
While there are numerous ways to insure
real property, all business owners can tailor their coverage to their own specific
needs. The key to ensuring you have the
proper coverage is to determine the value
of a structure, says John Dorris with
Westland Insurance Brokers.
Smart Business spoke with Dorris about
different types of coverage and how business owners can find the type that works
for their needs.
What is the first step business owners should
take when insuring real property?
A business owner should be insured to
value. This is the first step in ensuring you
get indemnified to the full replacement
cost of your structure.
Many insured’s don’t realize how much it
costs to rebuild their property in case of a
total loss. If a fire strikes your building, you
may have to replace the entire physical
structure. At times, this is more than the
market value price of a structure, specifically on older buildings.
Can business owners receive full replacement cost?
Yes, and they should expect it. But business owners shouldn’t rely on insurance
carriers to determine their building’s
replacement costs. It is important for business owners to talk with their contractors,
lenders, insurance broker and insurance
company to get information on current day
rebuild costs. Insurance brokers have
access to many resources that assist in
determining a property’s value.
What types of policy clauses should owners
discuss with a broker?
Agreed value: Many policyholders like
agreed value because it takes the guesswork out of what will be paid on a claim.
Agreed value is an agreement made
between the insurance company and policyholder that the limit of insurance listed
on the policy is that buildings value, and that agreed upon value is what will be paid
in the event of a total loss. Another advantage is that coinsurance is suspended.
Coinsurance: While some policyholders
would like to avoid coinsurance, it is by no
means a bad policy clause. Again, it
depends on the needs of one’s company.
Coinsurance is simply a policy clause that
requires property to be insured at a specified percentage of its full value (usually 80
percent, 90 percent or 100 percent) in
exchange for a pricing credit. However, if
there’s a loss and the client has inadequate
limits, the claim payout will only be a percentage of the total loss amount.
While these are just two examples of policy clauses to review, they show why it’s
imperative to know your buildings value.
When you do, you can make prudent decisions on how to insure it. Whether you
chose an agreed value scenario or a scenario with coinsurance, you’ll feel comfortable your real property will be replaced
without paying more than the deductible.
Is there a specific coverage that you would
like business owners to contemplate?
Ordinance of law coverage: Ordinance
of law is one of the most needed types of
insurance coverage, but one of the most
commonly overlooked. As your real property becomes older, building codes in your
county are updated to reflect new standards for construction. In many instances,
business owners don’t elect this coverage
because they don’t think ordinance
changes will affect them. As always, the
problem comes after the loss.
Ordinance of law has three parts to it:
demolition of undamaged portions of the
building, increased cost of construction
and debris removal after demolition. A
structure may have been built in 1971
when the building code allowed for aluminum wiring, but in 1975 the building
ordinance was upgraded to call for the
same building to have copper wiring. If the
policyholder has a fire loss that destroys
half the building, he may be required to
tear down the entire building and upgrade
everything to current code. Since complying with this code requires a change in
design and building materials, the additional costs for labor and materials will be substantial. Building owners who don’t purchase this coverage may find themselves
paying hundreds of thousands of dollars to
rebuild. So, for a minimal premium there is
a substantial benefit when an insured purchases ordinance of law coverage.
Is proper coverage often overlooked?
It is not overlooked as much as neglected. Insurance buyers may not understand
the importance of reviewing these limits on
an annual basis. As we’ve seen in so many
claims scenarios, business owners believe
they’re insured properly only to find out
after a loss that they’re underinsured. It is
crucial to sit down with your insurance
broker prior to renewal and review the current insurance program.
How can a business owner find the best
insurance provider?
When looking for an insurance provider,
business owners should choose an insurance carrier that focuses on their industry,
tailors their policy forms to protect that
industry, and offers risk management services to assist the policyholder in protecting
their property as well as their business as a
whole.
JOHN DORRIS is a commercial insurance broker with
Westland Insurance Brokers. Reach him at (619) 641-3245 or
[email protected].
