What is Insurance to Value in Commercial Property Insurance?

Insurance-to-value (ITV) calculations are important for businesses to conduct when you are purchasing or renewing your commercial property insurance. This is because the right ITV will help to provide sufficient protection against covered property losses. ITV generally refers to an approximation of the full cost to replace or restore insured property. When determining the insurance-to-value for your property (conducting ITV calculations), your organization should conduct a thorough analysis, considering all relevant factors, such as the type of property, its age, location, and more. By taking the time to do this analysis upfront, you can help prevent costly mistakes down the road and ensure that your commercial property insurance policy provides the right level of coverage.

What Affects Commercial Property Value?

To be sure that your ITV calculations are correct and that you’re accurately assessing your property, it’s important to consider the factors that affect the value of commercial properties in general. These elements include direct and indirect expenses, the age of the property, building codes and required modifications, accessibility of the property, unique features that will require specialized construction, and more.

How to Calculate ITV Insurance

When it comes to insurance for commercial properties, one of the most important things to get right is the insurance-to-value calculation. This is an estimate of the full value of an insured property, and getting it wrong can leave you under-protected in the event of a loss. That’s why it’s so important to conduct accurate ITV calculations when purchasing or renewing your commercial property insurance. Luckily, there are a few steps you can take to ensure that your ITV is as accurate as possible. Keep in mind that your commercial property may be assigned various values.

• ITV Market Value: The market value of your property is an estimation of its value in the current real estate market based on such factors as building size and condition, lot size, location, etc.
• Assessed Value: Similar to the process by which property taxes are determined, this value is determined by the local municipality.
• Replacement Value for ITV: This is an estimate of the cost it would take to replace or rebuild the entire property and takes into account the current prices of materials, labor, demolition and debris removal, site preparation, construction, permitting, etc.

The most commonly utilized ITV calculation approach is the replacement value. In this process, you may get the property appraised from a third-party using fixed-asset records with basic benchmarking to account for inflation.

What if ITV Calculation is Wrong?

Every day businesses use inaccurate insurance to value formulas that lead to disaster. Don’t rely on faulty insurance to value calculators! If your ITV calculation is wrong, specifically undervalued, you will end up underinsured and potentially further penalized. In the event of a destructive event or tragedy, your organization may face significant out-of-pocket costs to replace or rebuild your property. The associated replacement financial burdens, along with the loss of income during the transition may leave some businesses facing closure, or even bankruptcy. Additionally, the undervaluation of a commercial property may result in coinsurance penalties. Many commercial property insurance policies have what’s known as a coinsurance clause requirement. This states that a penalty may be wagered against you in the form of a reduced payout if your coverage is not at least a predetermined percentage of the value of the property.

Commercial Property Insurance Companies

By taking these factors into consideration, you can help ensure that your commercial property insurance to value estimate is accurate and that your commercial property insurance provides adequate protection against covered losses. An experienced, professional insurance company can also assist you in determining the right amount of coverage. The Nowell Agency has worked in the insurance industry for decades, specializing in business insurance products such as commercial property insurance. When it comes time to determine your ITV and purchase a customized commercial property insurance policy, you can depend on the expertise of the Nowell Agency. We’re here for you!