Would you insure your house for $500,000 when you only paid $200,000 for it? Of course not.
Here’s another question. Say that the house you purchased for $200,000 burns to the ground. Would you expect your insurance policy to cover the replacement cost of your house based on the $500,000 coverage you were paying for? Of course not.
It all sounds crazy, but manufacturers encounter such scenarios all the time because they don’t correctly insure the value of their building and property.
Here are some things you should know to determine if you are adequately valuing your building and property.
The first thing to understand is how property is valued. Insurance coverage is either valued on a replacement cost or actual cash value basis. The difference between the two is depreciation. 
Replacement cost is the cost to replace your property if it were new today. Actual cash value is the replacement cost minus the depreciation on your property. For instance, if your 10-year- old excavator is destroyed by a felled tree, your insurance company would replace it with another 10- year-old excavator, not a brand new one.
So, it is important your insurance policy reflects the depreciation value of your property. That way you’ll be adequately covered in case of a loss. Many manufactures list the new cost of their equipment on their policies but never update it based on depreciation
Another thing to understand is the difference between blanket limit and stated insurance.
Blanket limit is coverage you’ll need if your business operates at multiple locations. For instance, if all your locations were destroyed your insurance would cover each property under the policy.
Stated insurance is when you have a single property that needs to be covered in case it burns down, or is destroyed by a natural disaster.
At Sinclair Risk & Financial Management, I’m known as the risk doctor and problem solver. Email me today at jbelek@srfm.com to talk about implementing an insurance plan that’s right for your business.
Jonathan Belek
Sinclair Risk & Financial Management