One thing that most building owners tend to forget is the cost of rebuilding their property in the event that it’s destroyed. That’s why insurance is important. It helps you to recover from a devastating loss without having to go through a financial setback. By compensating you for damages suffered, you are able to re-establish your building within a short period. But before you can take up insurance, you should first value your building. Building insurance valuation is all about knowing how much you can really claim when you suffer a risk.
Here are 5 important costs that you need to be aware of:
Indemnity Cost
This is also known as Replacement Cost. It’s the most popular valuation costs for building insurance. It gives you an idea of what it will cost you to replace your building. Simply put, it shows the exact budget for building a similar property. However, it does not factor in the cost of land. It only takes into consideration the cost of materials plus labor. Since these costs often fluctuate, the Indemnity Cost is likely to fluctuate.
Actual Cash Value
Actual Cash Value is somehow similar to Indemnity Cost. Like Indemnity Cost, the Actual Cash Value looks at the cost of replacing your property. Nonetheless, deductions are made to the valuations depending on the age of your building. Considering that the value of your property reduces with age, you only pay less to cover it.
Open Market Value
This cost determines the price that your building will fetch at the current market. It also includes the value of the land that your building is built on. So many factors come into play in determining the open market value of your building. They include:
• The location of the building
• The overall status of the property market
• Capitalization rates
Reinstatement Cost
Sometimes referred to as repair cost, reinstatement cost refers to the total cost of building a structure that looks like yours. It can be identical but not superior to it.
Conclusion
The importance of building insurance valuation cannot be insisted enough. You have to know what your building is worth as you can’t tell when a risk will hit. It’s something that you have to do when taking up insurance. However, you need to understand the type of coverage that you are planning to purchase to avoid paying a lot of money out of your pocket at claim time than you should. For more information on the best coverage for your situation, contact your insurance provider.
