Catastrophic Consequences

Not surprisingly, most people are neck-deep in running their own businesses and don't really understand how their insurance works...and that can have catastrophic consequences.

You should have a basic understanding of what you'll be paid if something happens to your business property. If you don't get the money you need to replace it, how will you stay in business?

One way insurance companies pay for damaged or destroyed property is the Actual Cash Value (ACV) method. ACV is calculated as fair market value or cost less depreciation. Now think about that in this example... What's the value of...let's say... a 5 year old stove? Whatever it's worth, it's definitely a lot less than the cost of a new new one, right? A new stove might be $800.00 but the used one may be worth only $400.00.

With an ACV settlement, if the stove is destroyed you'll get $400 from the insurance company. BUT, it will cost you $800 to buy a new one.

Now... that's not necessarily a problem. It's simply a choice. You have other options.

One of them is Replacement Cost... and under this method you essentially get "new for old". When that $400 stove is lost, the insurance company buys you a new one - they replace the lost property - as opposed to compensating you at actual cash value.

Of course, choosing Replacement Cost means higher premiums. After all, the insurance company has more of a risk when insuring replacement cost. And more risk means more premium.

Neith option is right or wrong, it depends on your individual circumstances and your capacity to keep some risk yourself inexchange for lower premiums. There are other options. I just wanted you to understand the basics. And don't forget, the value of your property changes from year to year.

Give me a call if you want to discuss this topic further, or to make sure your property is protected like you want it to be.

Warm Regards,

Jeff Leibowitz
http://www.atlanticagency.com/
(631) 244-7784