What is My Property Worth?
One of the most important decisions to be made concerning your property insurance is the values that you set for the insurance policy. This is a topic that creates a great deal of confusion and is challenging because some of the parties requiring insurance only require limits to protect their interests, not your interests. The question you need to ask yourself is straightforward. What amount of money do I expect to recover in event of a loss? The best place to begin is to define the most common valuations.
This is the cost to replace the property with like kind and quality, with no regard to depreciation. What would it cost to rebuild the building from scratch with new materials? This seems like an easy question to answer until you factor in issues such as historic trim, any restrictions on the building by local zoning or historic commissions or your desire to replicate certain architectural features that are hard to replace or replicate.
This is easy – what did you pay for the property? If the property is used to secure a loan, the lender may require insurance at a limit that equals their interest in the property. If you are getting a good deal on the property, the selling price may be less than the replacement cost. The lender’s interest is protected, but you may have a gap.
Price of similar properties that are being sold to a willing buyer. Market price can be influenced by economic times, location, style of the property and other features that make the property easier or more difficult to sell. During an upswing in property prices, the market prices can be inflated by demand. Conversely in a period of lower demand, you may be able to buy a property for less than expected. Market price is more volatile than other valuations.
Actual Cash Value
This is the value of your property adjusted for depreciation. Age, condition and upkeep all factor into this value. There are two variables, the starting point of the valuation, and the amount of depreciation applied. To understand this process, you must know both variables.
This is a favorite of insurance companies. Since most property losses are partial losses, the cost to repair is matching new to old. If you have ever remodeled a room, you know that getting new cabinets to match up to existing walls and ceilings can be a time-consuming process. Many property insurers use this value as the default on the value estimators provided to their agents.
What is the right number?
What do you need to recover? Lower valuations may seem to save money on premiums, but if the amount you recover at time of loss is lessened by the valuation, it was probably not the best decision. We will continue this discussion in future posts regarding valuations clauses used in property insurance policies.
The Driehaus Difference
You are our customer. We want to understand your needs. If we and you both have a clear understanding of expectations, we can help you select the right values for your policy. This is not a process that can be done with an online chatbot or a scripted phone call. Reach out to us at 513-977-6860 or via www.driehausins.com to get a professional insurance consultation