Keeping you covered

By Tim Kolacz

When you are covering the property for your business, there are several items to review. The first is your inventory in each of your locations. The next is your other property like computers, tables desks and such. Finally you need to review how the property is covered in the policy; by this I mean, how is it valued and at what percentage is it valued.

As you review the property coverage, you need to have an accurate estimate of the inventory. Most people will know more or less how much goods they have on a day-to-day basis. You received $300,000 in new items, you sold $250,000 and you had $100,000 at the start of the month. Sometimes you will be front loading for your busy season and you will have higher inventory levels than normal. You can still be covered for these higher levels of inventory even when your listed amount is lower than what you have on the policy. Seasonal clauses can allow for influxes of inventory just as well as they can account for decreases in inventory during the year. Getting accurate counts is key to making sure that you don’t over pay for your coverage during the year.

After you have determined how much stock you have, next is to determine the amount of other items you have in your location. Anything that is not attached to the floors or the walls counts towards this amount of Business Personal Property. This can include the shelving systems you have for the inventory as well as personal items such as memorabilia or artwork. If the artwork is on the expensive side, you can purchase additional coverage specific to that item.

Now that everything is counted, you need to determine how accurate you were in your estimates. On the property policy there is an item called Co-Insurance. This is a clause that allows for you to be slightly inaccurate and still be covered. There are three main values of co-insurance: 100%, 90% and 80%. With the 100% valuation, you are saying that the value is dead on and that your values will not be higher than that during the year. At 90% you are saying that you have guessed pretty well, and at 80% you are reasonable close, but not completely sure of your estimates. Here’s where is gets dicey. If you say that you have a value of $100,000 in your location and a fire burns it all down, the coverage can pay a few different ways. At a 100% co-insurance, the adjustor will ask how much you had in the location and then will pay up to the $100,000 limit. If the value of the goods was at $110,000 and you had a 90% co-insurance, you will still get paid the $100,000 because you were within 10% of the value. However, if you had $130,000 in values and a 90% co-insurance, the insurance company will penalize you for not have enough coverage. they will take a “did over should” calculation. You did have $100,000, you should have had $130,000 so 100,000 divided by 130,000 is 77% and now they multiply that by the co-insurance of 90%, which brings you down to 70%; multiply that by $100,000 and you will get a check for $70,000.

Having accurate values on the items in your location is critical to making sure that you survive a major loss to your business.

Tim Kolacz works for HUB International and can be reached at 951-779-8730 or at [email protected]. He also had a great time watching Michigan football with his son.