A sound property valuation is the foundation for getting the right coverage to protect your interests.
Property valuations usually have two figures: the first is for the market value of the property, which includes the value of the land and an amount for the desirability of the location. The second is the value for the replacement cost of any buildings on the property. This is the subject matter of property insurance, as this is what you would want to recoup, should you experience a loss.
The danger of an inaccurate property valuation is that it can leave policyholders unprotected. Underinsurance can occur due to a simple error. Some clients might intentionally undervalue their properties in a bid to keep their premiums low amid rising costs.
However, underinsurance is likely to result in policyholders receiving only a fraction of the actual cost to repair damaged property, undermining the very reason for insurance in the first place. This can have severe consequences when it’s time to make a claim as any underinsurance greater than 15% will trigger the 85% ‘Condition of Average’, which is present on the vast majority of property insurance policies worldwide. Should this happen and you have a partial loss, your claim will be reduced by the proportion of the underinsurance. Should you have a total loss, you will only ever be able to claim the sum insured and the net effect is the same.
Here’s an example:
Your building is insured for $500,000 and you have paid the premium. You then lose half of the building in a partial loss, and the quotation for repairs comes in at $500,000.
If half the building is going to cost $500,000 to rebuild then the complete rebuilding of the entire property would cost 1M, and thus you are shown to be under-insured by 50%. In this partial loss scenario (the type that most losses are), you’d only be able to claim 50% of the reconstruction cost, i.e. $250,000.
If you experience a total loss, you’d only ever be able to claim what you paid a premium on, which is your half a million dollars, and you’re similarly unprotected.
After spending hard earned money on insurance, no one wants any unpleasant surprises when presenting a claim. We have all the tools and relationships to optimally guide and advocate for you.
Give us a call at 628- PRFC.
