Commercial Real Estate Valuation provides enterprises with authentic, useful information about the property for precision in their insurance policy. Cast an eye over this write-up to get an insight into commercial valuation for insurance purposes.
Why is Commercial Valuation Necessary for Insurance Purposes
Businesses keep on changing throughout their lifespan and so do the assets. Whether you modify the offices or add a secondary location or even if you maintain the same office space, the value of your property will change, as per the market trends.
To keep your business fully protected under your insurance policy, it is vital to update the insurance valuation of your property frequently.
While selling your property, you would definitely get it valued to know its market price and crack the right deal. Similarly, from an insurance point-of-view, it is essential to know the value of your property. At the time of damage, calamity or fire, the valuation report acts as a proof for your property’s worth and how much compensation you need to cover your loss.
Property Valuation Basics
Property valuation includes various things such as Real Property like buildings, machinery and equipment or movable properties like furniture, computer or telephone and other Business Personal Property.
Determining the value of your commercial property is not difficult, but it takes time and effort.
Determining the Value of your Commercial Property
Several factors are considered while calculating the market value of a commercial property, some of the key elements being locality, highest and the best use of property, financing, and other such features.
It is then determined which of the below-stated methods will be used for determining the value.
Methods used by Insurance Companies for Valuation
There are a lot of methods used by insurance companies for valuation of a property. But the below-stated three ways are primary. Usually, insurance companies use these methods to determine the value of the property:
It is the amount to replace or compensate for the damaged or destroyed property.
The replacement cost method is the most popular insurance valuation method as it provides a more considerable amount of financial protection.
It best puts you back to the financial position before your claim as it does not take depreciation into account.
The replacement cost method is costlier as compared to the Actual Cash Value method. But it is more recommended to go for the replacement cost method.
However, it is usually costly and may not be suitable for all the properties.
Actual Cash Value(ACV):
ACV is another way of determining the value of your commercial property.
This method also considers the replacement cost. But the actual amount is obtained after deducting the depreciation from the replacement cost of the property.
An actual cash value also provides modern construction techniques and materials to rebuild and repair the property. But this method allows you to insure the property for less, which means that you will receive less amount for your claim as well.
Actual Cash Value is preferable for you if you are willing to rebuild and repair your property using a less expensive method.
This method is less costly but also provides less claim. So, based on your business, you should decide which way would be suitable for your requirements.
Functional Replacement Cost:
Another cost-efficient property insurance valuation method is functional replacement cost. It is not much used but is beneficial in certain circumstances.
In this method, the amount of claim is equal to the material used to repair or replace the damaged property.
Functional replacement cost will pay to repair the property with a less expensive method using modern equipment.
The valuation is done based on the cost of your property’s modern functional replacement.
This method’s availability depends on the insurance companies, and it should be utilised only at the advice of your insurance agent.
Now you know why Property Valuation is a must for insurance purposes and are also well-aware about the methods used for valuation. Make sure to select the valuation method that best suits your purpose. It is always recommended to take advice from a professional to help you choose the right approach.
Thank you for reading!