Replacement-Cost Coverage

John Roark Comments
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Many self-storage owners are misinformed when it comes to the subject of replacement cost. This vital part of your insurance policy protects you in the event of catastrophe. Knowing the benefits and options makes for smart business.

Simply put, replacement-cost coverage ensures you can replace damaged property with comparable items. Actual-cash-value insurance, on the other hand, covers the replacement cost minus depreciation since the date of purchase. If premiums are reasonable and affordable, replacement-cost coverage is the wiser choice.

Unlike personal property that depreciates with time, business property appreciates. As a self-storage owner, you can expect a slight increase in your premium, generally 4 percent to 8 percent per year, which reflects the increased value of your facility. Your carrier is not trying to over insure you. The company’s aim is to give you coverage that would allow you to comparably rebuild in the event of a loss.

What’s Covered?

Business-property coverage can include anything considered to be part of facility construction, from the foundation to the roof. Depending on your policy, covered structures can comprise fences, retaining walls, roadways, patios or other paved surfaces, underground pipes, flues or drains. Business-personal property includes anything used for daily operation, such as computers, maintenance equipment and office furniture. Items generally not covered are the land on which the facility sits, motor vehicles, and tenants’ stored goods.

Insurance policies and coverages vary from carrier to carrier, so ask how your insurer can best meet your needs. The supplier will base your premium on information you provide, using an estimator that draws on building-cost data and methodology to determine replacement costs and depreciation values. Other factors that might affect your premium are:

  • Distance to the nearest fire station and hydrant
  • Construction quality of the facility
  • Sprinkler systems
  • Site security
  • Geographic location

Large buildings renovated or converted for self-storage usually carry a higher premium. This is because in the event of a calamitous incident, the probable loss on a single big building vs. several smaller buildings is 100 percent.

Fair Value

What is the best way to get a fair, correct number when determining 100 percent replacement value for your facility? An appraiser can best conclude actual property value on your behalf, or your insurance company can create an appraisal using commercial estimators such as Marshall & Swift or E.H. Boeckh. You should not attempt to appraise the buildings yourself, as the necessary knowledge is beyond the scope of the average facility owner.

While insurance companies encourage owners to insure their properties for full value, some policies may contain a coinsurance clause, a provision that only requires the policyholder to maintain coverage equal to at least 80 percent of the property’s actual replacement cost. Because partial losses are more common than total losses, some insureds take the gamble. Coinsurance can provide a reduction in premium, but penalties can apply, and a settlement will be merely a percentage of full contract reimbursement.

A qualified company that specializes in self-storage insurance is your best bet for obtaining the replacement coverage to satisfy your facility’s needs. It takes an agent familiar with the industry to truly help you protect your business.

John Roark is part of Universal Insurance Facilities Ltd., which offers a comprehensive package of coverages specifically designed to meet the needs of the self-storage industry. For more information, a free copy of your state’s lien laws, or a quick, no-obligation quote, call 800.844.2101; e-mail info@univins.com; visit www.universalinsuranceltd.com.

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