How much money will you receive from your insurance company when your commercial property is damaged? Depending on your coverage, your insurer will reimburse you based on actual cash value or replacement cost.
Actual cash value and replacement cost are the two main methods that insurance providers use to determine the amount of money to which the insured is entitled. Each type of coverage has pros and cons that your insurance agent will help you sort through.
Commercial Property: Actual Cash Value
Actual cash value is what the item could be sold for before it was damaged or destroyed. This method accounts for depreciation and, therefore, would not compensate the insured according to what it would cost to buy the item new.
For instance, if your business computer were damaged or destroyed, actual cash value coverage would reimburse you for the amount you could have sold your computer for prior to the damage. The computer’s age and wear and tear would directly impact the amount of money your business receives.
The insurer has less risk in actual cash value coverage due to lower replacement costs; therefore, premiums tend to be lower.
Commercial Property: Replacement Cost
Replacement cost is the money needed to replace the damaged commercial property with a new equivalent. Replacement cost does not account for depreciation.
For example, if a piece of business equipment is damaged, replacement cost coverage would provide the funds to purchase brand-new equipment. The amount of money the insured receives would not be impacted by the equipment being five years old and having substantial wear and tear.
The increased protection you get with replacement cost coverage typically comes with higher premiums than actual cash value coverage.
Which Coverage is Right for You?
Every business’s situation is different. Your insurance agent will help guide you to the type of coverage that makes the most sense.
Please contact Steve Longenecker (303-808-9351, x2) at Mountain Insurance: Longmont to discuss your business insurance coverage options in Longmont, CO, and our neighboring communities.
We give out $25 gift cards for referrals that become our insurance clients.
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