Underinsurance (Benefit Tip © 2002)

Bob bought $500,000 of property insurance for his small commercial plaza. After all, that is what he paid for the property five years ago. Bob didn’t realize that it would cost $1 million rebuild it today. A few months later, fire destroyed two units but the Fire Department saved the rest of the plaza. The cost to repair the damage was $420,000 but the insurance company only paid half that amount because Bob was underinsured.

Bob, like most business owners, did not understand the importance of purchasing the right amount of insurance. If he had, then the entire claim would have been paid. Now Bob needs to raise $210,000 in order to repair his building.

It is critical that you insure the full replacement cost of your property. Otherwise, in the event of a loss you will be:

  • underinsured,
  • receive the depreciated value rather than replacement value, and
  • become a coinsurer in the event of a partial loss.

    Often a replacement cost appraisal is the only way to be confident in your insured value.

    Please forward this tip to others responsible for commercial insurance.

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