Many commercial property insurance policies, like most homeowners insurance policies, include coverage for the items inside the insured building (along with coverage for the building, itself). The amount of coverage provided for items inside a commercial building, however, can vary greatly from one policy to the next. If you have a business in Westerly, Rhode Island that needs a commercial property policy, you’ll likely want to insure the items inside it with the best possible coverage -- which is replacement cost coverage. Here’s why.
When choosing a coverage for the items inside your business’ commercial building, you’ll likely have two main coverage options to choose from: replacement cost coverage and actual value coverage. Replacement cost coverage is generally the more robust of the two options.
Should any of the covered items inside your business’ building be lost or damaged in a covered claim, replacement cost coverage would provide enough funds to purchase new, identical items. Hence, the coverage has the name “replacement cost.”
Actual value coverage, which is sometimes called “cash-value coverage,” will only provide an item’s fair-market value if it's lost or damaged in a covered claim. In other words, actual value coverage will only reimburse you for an item’s actual value. Depreciation makes an item’s actual value often less than what it would cost to replace an item, and, thus, this coverage typically provides less protection than replacement cost coverage.
If your Westerly business has a commercial property insurance policy that only provides actual value coverage for items inside your company’s building, you might be stuck with a big bill if a disaster strikes. Your business would have to pay any difference between the lost or damaged item’s fair-market value and their replacement cost or go without the items.
In most cases, businesses can’t go without the items and, therefore, must come up with the difference. Sometimes, this is doable. Often, it’s either extremely different or impossible. For example, here are four scenarios where coming up with the difference would be devastating to a business:
1. A wholesale or retail business that has a lot of inventory may not be able to afford to replace all of its inventory, even with actual value coverage for the inventory
2. Business that needs equipment replaced immediately may not be able to wait even a short while to save up funds for lost or damaged equipment
3. A business that has a lot of equipment that depreciates quickly, like computers, may not have the budget for replacing its equipment
4. A business that has expensive specialty equipment might not have enough capital to purchase the same equipment again
In all of these scenarios, it’s likely wiser to purchase replacement cost coverage instead of actual value coverage. Replacement cost coverage would help provide enough capital to purchase new inventory or equipment quickly so that normal operations can resume as fast as possible and with reduced financial impact.
To find commercial property insurance that has replacement cost coverage, contact an insurance agent who serves Westerly and specializes in business insurance. They’ll be familiar with the various coverage options available through commercial property policies, and they’ll be able to help you pick one that will fully protect your business’ items.