The value of commercial properties has increased significantly over the last two decades along with the cost of construction.  Given the significant amount of investment, it is important for property owners to understand the importance of insuring to value.

There is a misconception of insuring buildings for an amount building owners would determine adequate as a cash settlement.  For example, a 10 unit apartment building was insured for $700,000 20 years ago and the owner has continued with this amount over time.  With inflation and today’s building cost that building should be insured for $1,400,000.  There is a substantial risk for a total loss that there is not enough insurance to rebuild as well as a partial loss subject to a 90% coinsurance clause.  Example an upper unit had a toilet leak causing damage to the unit and units below.  Estimated damage is $30,000 and insurance will only cover $15,000 since the building is only insured to half its value.

The process to get an accurate and updated building value is not complicated for most modern buildings.  The software available can produce a building value with the following parameters: building occupancy, construction description, number of stories, and square footage.   This will give building value and cost per square which includes debris removal.  For more complicated or older structures information pertaining to the unique formations of the building, permanently installed equipment, and municipal by-laws would need to be obtained.

A current building value allows the insurer to provide full replacement cost for a building.  The insurer will accept the building evaluation and agree to the stated amount and limits discrepancy at the time of claim.  It has become more common that insurance companies send out their own inspectors.  The submitted evaluation will be used as a guide to ensure appropriate coverage.   

Insuring buildings to value is imperative for successful property management.  Property owners are unlikely to sustain the windfall of inadequate coverage.  By providing updated information, building owners can ensure they have a correct assessment of their investment.   

- Dave Menegotto, Account Executive

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