What Am I Covered For?

There are 2 main sections to the policy:

  1. The Declarations (Dec. Page/s):
    • These stipulate who the Named Insured is (this entity will be named on a settlement check);
    • The locations where coverage applies;
    • The policy deductible/s;
    • The coverage forms applicable.
  2. The Policy document:
    • This details what’s covered, what’s limited, what’s excluded;
    • The forms listed in the Declarations;
    • The endorsements applicable to the policy.

You should always check the Declarations to ensure the information is correct.

How Is Your Property Valued Within The Insurance Policy?

The property value is often evaluated on only 2 occasions:

  1. When the policy is taken out (at inception); and
  2. When there is a claim.

This is less than ideal – please see the Insurance to Value (“ITV”) section.  This provides you with information important to the policy, coverages and claim settlement. Click here to learn more about Insurance to value.

Within a Property insurance policy (various forms and types of policies), there are 2 ways the Insurance Company (“Insurer”) determines how claims are valued, considered or settled, namely:

  1. Replacement Cost Value (“RCV”); or 
  2. Actual Cash Value (“ACV”).

To understand the difference between RCV and ACV – there’s a simple concept:

  1. RCV (Replacement Cost Value) – is the cost to replace the item with one of Like Kind and Quality (“LK&Q”).
    1. That means with the nearest current equivalent in terms of specification and capacity; but not of lesser capacity.  
    2. The original price is not a factor in this decision.
  2. ACV (Actual Cost Value) – is the RCV (Replacement Cost Value) less a deduction for depreciation based on:
    1. Age and condition, or 
    2. A percentage per year of age (ignoring condition).

Who determines the RCV/ACV when a claim arises?   There are 2 components, namely:

  1. The RCV/ACV of the insured property (as it would have been immediately before the loss); and
  2. The RCV/ACV of the repairs. 

So, who determines these values?

  • The insurance company, their adjuster, contractors, consultants will work to determine the RCV and ACV of the property before the loss occurred, as well as the costs associated with the repairs to the damaged property;
  • BUT – When applying for or placing the insurance policy, the burden of determining the Replacement Cost Value (“RCV”) of their property rests with the property owner (the “insured” or policyholder).  
  • The policyholder also has the duty to ensure that the limits are maintained at the amounts appropriate to remain compliant with the policy terms and conditions.

So the next question you have is likely … How does the insured determine the RCV of their property?  

But that question is actually “too soon”.  The next questions should be:

  • Do you (the owner / insured) know:
  • How do you calculate the RCV?
  • What should the RCV and ACV include, or perhaps more importantly, what should be excluded?  Or … 
    • What does the policy cover, and what does it exclude?
  • Is the building compliant with current building codes?
    • If not, what codes might be enforced in the event there is a loss?
    • Note - not all losses will trigger code upgrades;
    • Is there a way to determine what the potential costs could be?

When there is a loss and a claim is filed, the most important questions are:

  1. Will I be fully covered (indemnified) for the repair costs? 
  2. What will happen if I have a total loss?

REMEMBER:

Every property policy was originally written as a “Fire Policy”.  So, the amount of insurance (or your Limit of Indemnity) should represent what it would cost you (the owner) to replace or reinstate the building you had – Like Kind and Quality (with the same amenities and features) – that you enjoyed in the property immediately prior to the loss.

ISCE is here ready to help you calculate the estimated RCV of your insured property, and ensure that you have the peace of mind.