It could be a problem to rebuild if your insurance limit is based on the past owner’s policy or on what you paid for your building at the time of sale.
A property insurance policy lists a limit of building insurance and a deductible. But what about those other terms like “agreed value” or “replacement cost” or “coinsurance” listed on your policy? Do you understand how all that works in the event of a loss?
Often, building owners have purchased an insurance policy with a building limit that they are unsure about— maybe it was the limit on the past owner’s policy or it is based off of the valuation of the building at the time of sale.
The latter can be very misleading: the valuation created for the intent of a sale of a property is market value, which is very different from replacement cost. For the purposes of insurance, a replacement cost valuation will help you know how much it would cost to replace the building from the ground up in the event of a loss. These assessments can be secured by valuation professionals and can be of great help in getting you adequate property protection.
Market value contemplates the value of the building in relation to the area, and in relation to other buildings of like kind and quality in the surrounding area. There are some circumstances where this is the right valuation to choose, so talk to your agent or broker about the benefits.
Remember, you will receive no more than the limit listed on your policy in the event of a loss, so it’s important to get these numbers right.
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