If you have bought a property for commercial purposes, you'll want to look after your investment. This means you need to get various types of insurance, with coverage to rebuild the building on top of your list. So, what do you need to know about so-called "buildings reinstatement" insurance and the importance of getting your sums right?
Assessing The Value Of Your Building
When you purchased the building, you would have paid a certain amount based on many different factors. There'll be the value of the land upon which it sits, the structure and probably its potential in terms of location and marketability. You could assess this as its "market" value, and it's more than simply the sum total of the bricks and mortar, fixtures and fittings. However, when it comes to value for buildings reinstatement purposes, this will not be the figure used.
Reinstatement Does Not Mean Market Value
Insurance companies are only concerned with reinstating the building if it is destroyed in a covered event, so you are not worse off than you were immediately before. They won't use any market value figures as these can fluctuate wildly according to market sentiment. They wouldn't be able to underwrite those risks with so many variations, which means that you will have to arrive at the declared value before getting coverage.
You need to be careful when declaring the value and never try to knowingly under or over-inflate. Instead, work out how much it would cost to reinstate the building as of today and use that figure instead. Insurance companies will then allow a certain amount to account for inflation during your coverage period.
The Perils Of Incorrect Value
Some people may purposefully undervalue to try and cut down on the premiums. However, if the insurance company finds you have done so during a claim, they may automatically reduce their liability and consider you to be a joint insurer. This means you will have to pay for the balance out of your pocket. Clearly, it's not a good idea to over-insure either, as you will certainly pay more for your premiums, leaving you out of pocket in time. It's much better to make the correct assumptions so you don't add additional stress following an unfortunate event.
Talking With Experts
Make sure you get your building valuation correct to cover your risks fully. Talk with a commercial property insurance service today, and they will guide you accordingly.