WEDNESDAY, FEBRUARY 26, 2014
You know your home or commercial building is worth $200,000. Yet you are only insuring it for $100,000 as Replacement Cost. Why? Well, because you like the premium for $100,000 worth of insurance much more than the premium to insure to value!
But here's what happens when you don't insure to value. A major hailstorm rolls through (and we're right on the verge of storm season!) and totals your $50,000 roof. You turn in a claim, and the insurance adjuster comes out to inspect the damage. "Wait a minute," the adjuster tells you. "Your building is worth $200,000, easy. Yet you're only carrying half that amount. So we're only paying 50% of your claim!" That's right; you're only going to receive half the amount it takes to replace that $50,000 roof (minus your deductible as well). It's what's known as the coinsurance penalty.
And let's not even think of a catastrophic loss. If a wedge tornado takes your building off its foundation, you're only receiving $100,000 to replace a $200,000 structure. So it never pays to underinsure. Insure to value!
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