When you have physical damage coverage on your company’s property- vehicles, equipment, tools- it’s important to understand what kind of coverage you have when you buy insurance. How the insurance company values your tools determines how much they pay in the event of a claim. So- what methods do carriers use when placing a value on the property you insure?
There are two ways that your insurance will cover what you own- replacement cost (RC) and actual cash value (ACV). How much money you get when you file a claim is determined by which valuation your carrier uses.
Replacement cost means the amount of money to replace new. Say you have a skid-steer that you bought 5 years ago for $8,000 and it is insured at replacement, and a new one today would cost $15,000. If that skid-steer is stolen, your inland marine policy would pay out $15,000 to replace your equipment.
However, under Actual Cash Value, this situation would look very different. If you bought this skid-steer new 5 years ago for $8,000, you have 5 years of depreciation on this vehicle, which is factored in the valuation. So, if your inland marine renewed on 1/1, you would have submitted a valuation of this vehicle at $5,500 factoring in those years of depreciation.
If the skid-steer is stolen, that $5,500 is now treated as a ceiling, not a guaranteed payment. The adjuster would then look at the market and determine, what can the insured find the exact same skid-steer for. If it’s $4,000, you should expect $4,000 to pay out. If it is $5,500 or more, the maximum you will receive is $5,500.
Two more things to note about these coverages. First- not all carriers offer replacement cost. Some only offer actual cash value. Second- if replacement cost is an option, you should it expect it to be much more expensive than actual cash value.
So, when you are reviewing your insurance policies at renewal, make sure you understand what your property is valued at and what your options are. Then, you can accurately set your expectations in the event of a claim and understand how much you can actually expect to receive in the event of a total loss and plan accordingly.
Wyatt Rickles
205-913-2880
