When you insure property, you want to get the value just right.
People might over-insure their property because…
- The bank loan requires HIGH limits
- Agent misestimated the valuation
People under-insure their property because…
- The policyholder / agent wants to reduce premium
I’ve rarely (if ever) seen a property owner willingly over-insure their property. Under-insuring property to cut premium, however, is very common. But this method backfires when the insurance company applies a ‘co-insurance’ condition that penalizes a claim on under-insured properties. Here’s an article that explains more about property ‘co-insurance’.
How do you establish the proper valuation?
Get a replacement cost appraisal. There are 2 methods for accomplishing that…
- Pay an appraiser
- Use a ‘Marshall Swift’ estimator
Most insurance agents have free access to ‘Marshall Swift’ software, so requesting this service from your agent is the easier, cheaper option. But simply accessing this software doesn’t guarantee an accurate appraisal. A few tips for making sure it’s an accurate ‘Marshall Swift’ appraisal…
- Correctly Classify the building type / occupancy – There are many occupancies and building types to choose from. Read through the descriptions and choose the right one.
- Make sure you got the right construction type – Using ISO 1 vs ISO 2, 3, 4 for your estimate….this makes a huge difference on the final figure.
- Know details on square footage, ceiling height, and number of stories – These are used to accurately assess the size of the building.
- Include any unique property characteristics – Do exterior walls have any ornate features? Is the roof-type, plumbing, HVAC, or electrical different from the industry-standard? Does the building have an elevator?
Even after establishing perfectly accurate property values, you still need best-in-class rate to get a low premium.
Understanding ‘rate’ is the key to a low premium…