In general terms, insurance to value is having enough insurance coverage to pay to replace or repair property, such as a greenhouse, when a loss occurs.
The insurance-to-value calculation is important for both insurance companies and business owners. Companies want to make sure the right premiums are in place for the risks assumed, while business owners like you don’t want to be underinsured when something goes wrong. If the damages cost more than the coverage, that’s more money out of your pocket.
Both you and agents often look for the lowest premium possible when creating a policy. The simplest way to accomplish this is by lowering the values of the property.
This may take care of an obstacle—lower premium costs—up front, but the larger issue may come into play once a major loss occurs. Not only is there a possibility of falling short of coverage to indemnify you of your loss, you may also be penalized for being underinsured. This is known as a co-insurance penalty.
We see this issue often in our industry, especially when a catastrophic event occurs. Some of the reasons are particular to horticultural companies:
- As growers, you often use your own labor when building greenhouses and out buildings. Since your own labor is cheaper than outside contractors, you believe this is indicative of a true labor figure.
- Some of the structures you may have built are previously used and were purchased at a percentage of what the actual cost would be for new structures.
- Code requirements were never considered.
- Greenhouse equipment costs are priced considerably lower than what a contractor will charge.
Losses can occur at inopportune times, and when they do happen, you’ll likely want to get the repairs completed as soon as possible. That means calling a reputable contractor. To be fully covered for your loss, be sure:
- The value of the property being insured is calculated by using similar estimates to build the property from the ground up. This would likely involve using outside contractors in multiple trades to do the rebuilding.
- You take the value of all your equipment in your buildings and greenhouses into consideration.
- You understand whether code upgrades will be enforced for your buildings or greenhouses.
Market value vs. replacement cost
One thing that’s important to remember is that insurance to value doesn’t refer to the market value of your property. As mentioned above, it refers specifically to the cost to replace or repair your property with the same or similar materials.
As labor and material costs increase year to year, your property insurance value should increase accordingly. Include inflation guards in your contract of insurance.
By accurately matching the amount of insurance protection to the value of your property, you can avoid being caught short of coverage when you need it most.
Have questions? We can help. Ask your Hortica agent to verify that you have the proper insurance-to-value ratio.
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