Ever wondered that why sufficent coverage is better than excessive coverage.?
Insurance Valuation guarantees the property owner that he has adequate insurance and is not paying for excessive coverage. A property loss can be a devastating experience even when fully insured. Incurring a loss when inadequately insured can cause financial disaster..
Insurance Valuation provide evidence regarding replacement cost. Insurance Valuation confirm casualty insurance coverage is adequate to rebuild the property in event of a casualty. supplies you the values to allow you to set your insurable values at the proper and appropriate levels. Since construction costs have increased sharply in recent years, replacement costs have changed materially in the last few years.
Purposes of insurance Valuation include making the following parties comfortable insurance coverage is adequate:
Insurers
Lenders
Owners
Limited partners
Tenants
The objective of an insurance valuation is to provide adequate funding to replace the physical property destroyed by a loss. This would include the structure. However, damages for lost rents are not part of an insurance valuation analysis, though they can be insured as an additional expense or business interruption Insurance Valuation are prepared by calculating the cost to replace the existing property, including items which would be destroyed by a casualty. An insurance valuation would typically focus on replacement cost instead of reproduction cost. Insurance addressing reproduction cost is atypical. Replacement cost is the cost to build a replacement building which is functionally equivalent to the subject property. Reproduction cost documents the cost to build an exact duplicate. The cost of site preparation, paving, sidewalks, underground utilities, and foundation would not be included when calculating replacement costs in the insurance Valuation. Appraisers would visit the site and document the quantity of improvements and type and quality of construction materials.There are several options for calculating replacement cost. The square foot method provides an estimate of values based on the overall building size and utility. The segregated cost method actually calculates the cost of the individual building components and rebuilds the building piece by piece. The option you choose depends on both your needs and the complexity of your properties. Replacement costs are developed from the combination of construction costs manuals and/or interviews with developers, lenders, and builders.Appraisers typically focus primarily on construction costs manuals to develop a preliminary opinion of replacement cost. Discussions with real estate professionals are used to review the accuracy and reasonableness of data in the construction cost manuals. Since most buildings are insured on a replacement bases, the “cost approach” used in a traditional appraisal may not meet your needs.
Accurate replacement cost data can ensure the insurer, lender and owner are adequately protected in event of a casualty.