Let's say you get a great deal and buy a $100,000 replacement cost building for only $50,000, you may be tempted to insure the structure for the $50,000. Your thought might be: “I only have $50,000 invested, so if it burns down I would be fine with getting that amount in return.” In the case of a total loss, the policy would pay $50,000 less the deductible; however in the case of a partial loss, you would likely have a coinsurance penalty because you did not insure the building to value. Think about it this way: If half of the building was damaged in a fire and caused $50,000 in damage, then which half burned, the half you insured with the company or the half you “self” insured?
Most companies have a coinsurance percentage requiring the insured cover the property to value. A typical coinsurance percentage is 80 or 90 percent. This means that you would only need to insure the building to 80 or 90 percent of the replacement cost to avoid a penalty on a partial loss. If you were to use a lower value, you may wish to consider insuring the building for actual cash value instead of replacement cost. If your policy is already on Actual Cash Value basis, you would definitely need to increase the value to avoid a penalty at claim-time.
Talk to your agent about running a replacement cost estimator on your building. This should give you a general idea if the property is insured correctly. The best way would be to talk to a contractor about the actual cost to replace your structure. Also, keep in mind you can have a co-insurance penalty on your contents as well if adequate limits are not kept. Revisit your property limits with your Lake of the Ozarks insurance company each year to keep the values where you need them. Proper planning is no accident.
Contact Insure the Lake today for all your Lake of the Ozarks insurance needs!
About the Author: Steve is a double back-flip insurance ninja. He was named Young Insurance Agent of the Year by the Missouri Association of Insurance Agents in 2010 and is a Certified Insurance Counselor. When he is not helping customers, he enjoys community service, Latin dancing with his beautiful wife and going on adventures with his two awesome sons.
Steve Naught, CIC
3736 Osage Beach Parkway
Osage Beach, MO 65065
Next to Golden Coral