Isabelle Y. Carrier* | Desjardins Group
Your business is one of your most valuable assets. In the event of a claim, if you don't have enough insurance for the building and contents, your business could take an important financial hit.
The amount of insurance that appears on your policy for commercial property (building and contents) corresponds to your own assessment of the property. When you take out commercial insurance, your insurer agrees to cover that amount. In the event of a claim, this is the maximum amount your insurer will pay.
If you've overlooked something and your assessment is too low, you'll have to pay the difference in the cost to rebuild or to replace your property. For instance, if you're insured for $500,000 but damage after a loss amounts to $1 million, you'll only receive $500,000.
Suppose a gas leak in your building causes a major fire. Would the amount of coverage you have on your insured property be enough to cover the loss of your building and all the contents? Let's take a closer look.
One of the best ways to determine your rebuilding cost is to have an appraisal done by a specialized insurance appraisal firm.
The appraisal firm will consider:
- The specific characteristics of your building (actual dimensions, complexity of the structure, materials used, construction year)
- How the building is used (e.g., restaurant, hotel, shop, seniors' residence)
- Electrical, mechanical and attached equipment (elevators, automatic sprinklers, fire alarm, air conditioner, etc.)
- Landscaping and parking areas
- Demolition costs (including removal of debris)
- Labour and material costs
- Building standards (from Régie du bâtiment du Québec)
This kind of appraisal should be done periodically (every 3 to 5 years) to take account of inflation and any improvements or additions to the building.
The amount of insurance under the «contents» portion of your policy is just as important. When assessing the value of your contents, you should consider:
- Furniture and valuables
- Telephone and computer systems
- Tools and machinery
- Products and merchandise
- Valuable documents and records
- Equipment and materials specific to your industry
Don't leave anything out. You should also reassess the value periodically to make sure you have enough coverage in the event of a loss. Let your insurer know if your inventory fluctuates during the year or increases at a specific time (e.g., at Christmas) so the amount of insurance can be adjusted accordingly.
A Business Insurance Package Policy generally includes Business Income Insurance. In the event of a loss, this covers your business income, rental income and certain employee salaries during a temporary closure. If your income isn't adequately protected, this could have a serious impact on your business. Again, when purchasing commercial insurance, it's important to give an accurate assessment of your income based on your financial statements.
Depending on the nature of your business, you should also estimate how long it would take to get your company up and running again after a loss. Think about how long it would take to rebuild, to restock your inventory and to replace sophisticated equipment. Depending on your estimate, it may be a good idea to enhance your business income protection.
The risk of estimating too low
As you can see, assessing the value of your commercial property is crucial to ensuring that your business can survive a major loss. In the event of a total loss, your business would suffer financially if you don't have enough coverage.
Depending on the type of loss, when carrying out a damage assessment, your insurer may also assess the replacement cost for the building and contents. If you're underinsured, you could be penalized because the insurer is only required to compensate you for the insurance amount based on your initial assessment. This amount may not be enough to cover the actual cost of the damage.
Some insurers also apply a co-insurance clause, which penalizes you even more.
The best time to reassess the value of your commercial property is when you renew your commercial insurance policy. Take the time to review the insurance amounts for the various coverages carefully based on your inventory, annual purchases and sales, and make any necessary changes. Remember an accurate assessment is the key to ensuring your peace of mind in the event of a loss.
*In collaboration with Claude Pellerin, S.F.P.E., T.P.I., Wilfrid Tanguay inc. and Desjardins General Insurance