Do You Have Adequate Coverage Limits?
In our previous post, we asked this question:
True or False: Insurance brokers are provincially regulated.
Answer:
Yes, they are! Insurance brokers are regulated by the Registered Insurance Brokers of Ontario (RIBO). All brokers must register with RIBO before they can work as an insurance broker in the province of Ontario.
Did you know the answer?
Now for this post’s question!
When determining an adequate coverage limit for your insurance policy, what is the difference between the replacement cost and the actual cash value?
Check back for the answer in our next post!
When purchasing insurance for property and business risks, it’s critically important to ensure that you purchase the right amount. When it comes to selecting policy limits, ultimately the responsibility for selecting an adequate limit falls to you, the insured, but your broker can assist as they have access to some electronic valuation calculators that can provide estimates.
Sometimes, the estimated rebuilding value can seem very high, particularly when you consider it in comparison to the market value of the property. There are some good reasons for that. When it comes to rebuilding you need to consider:
•Up-to-date replacement cost of the entire structure including the foundation, sewage and utilities, and any interior finishing.
•The additional cost to comply with current Building by-laws, which may have changed significantly since the building was originally constructed.
•How quickly do you need the building repaired or replaced? Urgency in rebuilding increases labour and materials costs.
•Removal and storage costs associated with undamaged building contents.
•Costs associated with demolition and debris removal, even perhaps toxic debris that cannot go to the landfill but requires special (and expensive) disposal techniques.
•Fees for building permits, engineering, and architectural work.
•General contractor profit and overhead costs, which tend to increase as costs increase for reconstruction projects.
•And don’t forget the tax man – HST for all projected amounts.
Having adequate coverage limits could mean the difference between either taking on new debt, losing your business and lifelong work in the event of a disaster, or getting yourself back up and running with little delay and little personal financial burden.
Professional Appraisers can also help to determine replacement cost estimates, and are headed by a central body, the Appraisal Institute of Canada (www.aincanada.ca). You may visit their website or phone their head office (613-234-6533) to obtain a list of members.
Even for a partial loss, under insurance is penalized, as the application of the a co-insurance clause will reduce the amount of the claim payout proportionately to the amount of under-insurance.
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