When you own a business, any peril can make or break your bottom line. Commercial property insurance provides property protection and liability coverage for you as the property owner. This coverage offers financial reimbursement if and when you file a claim. But there are two insurance coverage levels: replacement costs or actual cash value. Which one does your policy contain, and what do these terms mean? Here is some information to help you figure out your coverage.
Replacement Cost
When your business suffers a loss, your biggest concern is usually covering the loss with little or no money out of your pocket. Replacement cost coverage does precisely that.
A replacement cost policy means the policy will pay for your covered damaged property to be replaced at today's prices. Even if the property is not new, the company will not depreciate in value.
For example, if a thief steals your three-year-old computers out of your business, your commercial property insurance policy will pay for new systems of like kind and quality. The company will not attempt to replace them with three-year-old computers.
Your commercial property insurance can cover the following:
- Buildings (whether leased or owned)
- Equipment and supplies
- Inventory
- Mobile property
- Records, documents, and books
Your policy can also cover many other components of your business. Your policy will not only replace your property but will also rebuild your property if needed.
Actual Cash Value
With actual cash value coverage, your policy takes into consideration the age and condition of the property the insurance is replacing. This coverage takes the cost of replacing your property and reduces the amount by depreciation. The remaining value is often referred to as the fair market value.
Using the above example, the insurance company would only partially cover the cost of your new computers under an actual cash value policy. Your policy would provide a percentage of the new price. The policy would reduce the cost based on your covered computers being three years old. The insurance company will offer what it deems fair market value.
Commercial property insurance policies containing actual cash value usually cost less than those containing replacement value. But always remember the remaining balance at the time of loss will have to come out of your pocket.
With any policy, your deductible may apply. As your business grows, review your policy annually. Your annual review ensures you have adequate coverage to keep your business afloat when perils hit.
For more information about commercial property insurance, contact a local insurance provider.
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