How to Figure Out How Much a Property Insurance Claim Is Worth

When a commercial property is damaged, it can give its owners a great deal of unnecessary stress. Even if only a piece of the property appears to be harmed, the entire property must be evaluated to ensure that the insurance claim is complete and accurate. In order to do so effectively, business owners must be able to determine the worth of a claim for commercial property damage.

Valuing Claims for Commercial Property Damage

Calculating the value of commercial property damage is comparable to calculating a loss payment for a residential property. Although the processes are comparable, quantifying a commercial loss typically involves more time and stages. When assessing the worth of a claim, business owners will need to collect many crucial pieces of information, including:

• The sum total of property and contents damage.
• Any policy limits related to each form of insurance coverage
• The coinsurance proportion
• Any applicable deductibles
• Whether the property is insured for its replacement cost or its real cash worth
• The market value of the insured property at the time of loss

Determine the Overall Amount of Damage

The insurance company will provide the policyholder with a proof of loss form when a commercial structure sustains damage. This should supply the insurance with the details of the loss and a breakdown of the amount being claimed. Once the evidence of loss form has been submitted to the carrier, the total amount of damage can be established.

Even if the overall amount of damage exceeds the policy limitations, the policy limits must be factored into calculating any coinsurance penalties that may apply. The final payout cannot exceed these limits. It is imperative that commercial property owners should not reduce the overall amount of damage to match the insurance limit, as they could be punished after deducting any relevant deductibles.

Note Any Property Exclusions

A business policy does not cover all facets of commercial property. In fact, the Insurance Services Office specifies that money and securities, food stamps, animals, piers, docks, harvests and grain, excavation charges, construction foundations, and paved surfaces are typically excluded from coverage. Electronic information, such as personal and corporate data stored on a hard drive, is sometimes omitted as well. Consequently, the expense of restoring significant digital data is frequently not covered by a normal commercial property insurance policy.

Despite these exclusions, certain policy endorsements may provide coverage for some of these things; however, the relevant endorsements must be in place before the loss. Suppose an excluded item is included in the total damage amount stated on the proof of loss form. In that case, its value must be subtracted from the insurable loss value in order to determine the actual insurable damages.

Calculate Coinsurance

Coinsurance is the practice of dividing or distributing risk among numerous parties. This applies to both property and contents coverage following a loss with commercial insurance. Coinsurance guarantees that policyholders insure their property for an adequate amount and that insurers receive reasonable premiums in exchange for the risk. The majority of coinsurance clauses require policyholders to insure 80%, 90%, or 100% of the real value of a property. For example, a structure with a replacement cost of $1,000,000 and a coinsurance clause of 90% must be insured for at least $900,000. The same structure with a coinsurance clause of 80% must be insured for at least $800,000.

Coinsurance is calculated using a rather simple formula. Start by dividing the actual amount of coverage on the property by the amount that should be carried (either 80%, 90%, or 100% of the property's value). Multiply this figure by the lost amount to determine the amount of reimbursement. If this reimbursement value exceeds the policy's set limits, a secondary insurer can provide the remaining cash.

Calculate the Deductible

The deductible is the amount a policyholder must pay before an insurance provider covers expenses. In most circumstances, only one deductible applies to a single loss event under a commercial property policy with several deductibles for different types of covered losses. When a loss involves damage to multiple covered properties, and distinct limits apply, the deductible is charged only once per occurrence.

For example, suppose an insured has commercial property insurance with separate limits for the structure and its contents and a $1,000 deductible. In that case, the amount will only be taken once for both types of damage caused by the same loss event.

Determine the Quantity of Qualified Loss

After deducting the deductible from the amount of insurable damage, the amount of eligible loss can be determined and compared to the policy limits. If the limits exceed the amount of qualified loss, just the loss amount should be paid. However, if the loss exceeds the policy limits, only the purchased amount of coverage can be acquired.

Consequently, policyholders must remember to include any applicable supplementary coverage beyond the limitations of their commercial insurance. These amounts can be paid in addition to what is provided under the base policy and can include, among other things, debris removal, reasonable repairs, higher construction costs, fire department service fees, and pollutant cleanup.

Knowing how to effectively calculate a claim for property damage is crucial, but it is a complicated procedure with many moving components. Policyholders should contact legal advice to ensure that they buy and maintain adequate and comprehensive property insurance coverage.