Substance over image since 1926

 Insuring to Value 

  It is tempting to want to try to reduce cost by insuring for a smaller limit than that which a structure would require to be       replaced, or worse yet, insuring for what the expected loss might be (loan US that crystal ball).  When we hear people say       "but I can only SELL it for (so much less)" we have to remind them that in New York, policies written on replacement cost       basis will put that insured back in the same condition as they were before the loss.  That will require NEW 2x4's, NEW glass,   NEW drywall, etc. 

  There are several VERY good reasons to avoid underinsurance. 

  By far and away, policies with the lowest rates per $1,000 of coverage require insuring to at least 80% of the replacement     cost of a structure in order to GET replacement value at the time of loss.  Some policies will automatically drop you back to   an Actual Cash Value (take depreciation) adjustment if you don't insure to value. 

  Another reason would be to avoid having to participate in a partial loss (see example below)

  95% of structure coverage is written on a replacement cost basis, to put the insured back in the condition they were in           prior  to the loss, the original intent of insurance going back 100 years or more.  This is still the way that most people want     their  losses adjusted, especially after the loss (not quite as many before). 

  An example of co-insurance penalty may be a building with a replacement cost value of $200,000, insured for only               $100,000.  With an 80% co-insurance clause, this building should be insured for $160,000 minimum.  The insurance limit     is 10/16ths what it should be, so a loss of $32,000 would be paid at $20,000 (10/16ths of $32,000) less the deductible,         leaving the insured to pay $12,000. 

  There are some cases where, should an insured not wish to repair or replace damage, an ACV or actual cash value policy can   be purchased.  These are fraught with problems, such as what happens if the property is only HALF damaged.  On top of       this, actual cash value policies have higher RATES than replacement cost policies because the actuarial payout is a higher       percentage of the insured value.  Not a great deal, but a problem solver if the need arises. 

  There is another option for buildings with historical value, known as "Functional Replacement Cost" where a loss would be     adjusted based on the replacement of a period specific construction style with modern, less expensive functional                   replacement. 

  This is just one more reason to have an experienced professional to talk to when making decisions about ow to protect         what  is yours.  ANY company will insure you ANY way you want to buy insurance, but be sure there is always language to     protect  their rating and actuarial models from abuse.  You and I would run such a company the same way. 

Insurance SERVICE since 1926!!

653 Main Street, East Aurora, NY 652-1420

We do not write insurance contracts.  Nothing we say or write here can be deemed to change any insurance contract.  Our responsibility is to give insurance advice and to suggest a match for a risk with an insurance contract from a company who will accept that risk for a premium.  We are not attorneys who can give legal interpretation to the contract between insured and their insurers.  Information here is general in nature, for the widest audience