Avoid These Mistakes When Calculating Your Insurable Values

Did you know that trends indicate the values of insurable property are underestimated, spelling big trouble should a loss occur, and assets need to be replaced? This means more dollars out of pocket to rebuild and get back to business.

So, how can you ensure that your insurable property is valued correctly? Let’s go over how to avoid some common mistakes and get you on the right track to calculating accurate insurable values.

  1. Don’t Rely on Depreciated Value– The depreciated value of buildings, equipment and other property is often pulled from financial statements, but those figures are not a true reflection of the assets’ replacement costs. To get accurate values, consult professional contractors or in-house construction staff on replacement values for buildings and have discussions with equipment manufacturers and suppliers for a replacement cost appraisal on other equipment.
  2. Utilize Proper Cost Indices– Keeping values current and on par with inflationary cost indices and market trends is key. Oftentimes, because decision makers fail to factor in these trends, insurable values can fall out of date over time. For example, if inflation runs at 2-3% per year, reported insurable values can be off by 15% or more five years down the road if proper cost indices are not applied.
  3. Outdated Asset Records– The use of capital asset records is often a good starting point to begin developing insurable values; however, this approach relies upon the accuracy of the asset records and how often they’re updated. The cost of an asset on the Balance Sheet is often reported, but the asset’s selling price may be a more accurate insurable value.

Now that you’re aware of some of the common mistakes and how to avoid them when preparing insurable values, hopefully you’ll be inclined to take a closer look at the property valuation appraisals currently on-hand and spend some time ensuring they’re up-to-date. Taking the extra effort to proactively manage these values will pay off in the long-run should an unfortunate loss occur at your facility.


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