When insuring property (building or house) we are always faced with a question on what the correct insured sum should be. If you are
underinsured you not only get penalised for the under insured amount but also through the average clause if partial loss occurs.
However, if you are over insured you are probably paying excess insurance premium. So how do you decide? There is two ways in
which property insurance sum can be determined, these being;
Indemnity Value (IV)Cover
This is the value of the item at the time of the loss. Payment of the indemnity value is designed to put you in the same financial position you were in immediately before the loss occurred. This
therefore takes into account the issue deprecation thus if a property was built for $100,000 in year 1, assuming a straight-line deprecation of 1%, after 10 years the depreciated value of the
property will be $90,000 thus the indemnity value.
Replacement Cost or Replacement Value (RV)
The term replacement cost or replacement value refers to the amount that an entity would have to pay, at the present time to replace any one of its assets. Replacement cost is not market
value, but is instead the cost to replace an item or structure at its pre-loss condition. Using the same example as IV cover, assuming the cost of construction increased by 15% over 10 years, the RV of the building would be $115,000 in its 10th year of insurance.
How Do I Calculate my RV
You don’t. You get a registered value to carry out A Valuation for Insurance Purposes. At Sun Insurance this is normally valid for a period of 2 years.
Want to know more about how to choose and arrange cover for your domestic home or commercial building?
Just give us a call at 09-525-3232, we will take you through and help you out.
Alternatively, click below to send us an email.