Why Doesn’t My Insurance Cover The ‘Market Value’ of My Property?

Why Doesn’t My Insurance Cover The ‘Market Value’ of My Property?

By: Samantha Dutra, CIC, CLCS

Why Doesn’t My Insurance Cover The ‘Market Value’ of My Property?  We are asked this question a lot by our clients who insure commercial buildings as well as homes with us. When we break down the components of the market value, the reason is easier to see.

For the example, I’m going to use the building we lease here at Stone Creek Insurance Agency – a 2-story 9,924 sq. ft. professional office building located in Lafayette, CA.

The market value of the property is between $3,000,000 to $3,500,000 depending on who you ask. Market values are based on the price of the land plus improvements, which in this case is a building and parking lot.

Land + Improvements   =

Market Value

For insurance purposes, we do not cover the value of the land itself. In the event of a fire or other type of covered loss, the land wouldn’t be damaged. It is a constant, meaning that portion of the property will always have its own value, regardless of the improvements (buildings) that are made.

What we do for our clients at Stone Creek Insurance Agency is verify the cost to rebuild the structure itself. The value of the improvements is separate from the value of the land. We use an industry-standard tool called a MSB Valuation, which is the abbreviation of Marshall & Swift/Boeckh Valuation. The tool calculates the cost to replace the building using materials of like kind and quality.

Improvements – Land   =

Insurable Value

While the market value of our property is between $3MM and $3.5MM, the MSB valuation for the building itself comes in at about $1,825,000. The tool estimates that is the cost to rebuild the structure to be just over half the market value. We understand it can be frightening for some property owners to see a value like this, but so long as it is understood that we’re not insuring the value of the land itself, it makes more sense.

Are you concerned that your building may be undervalued, or perhaps you’re wondering if you are over-insuring your building? Give us a call at Stone Creek Insurance Agency and we will be glad to assist you.

All information is general in nature and is intended to provide guidance only. It is up to you to request specific coverage options, the agency and agent do not bear this responsibility. Always read the policy if there is a questions about coverage or a claim. If any information herein should conflict with your actual policy’s specific language, the policy language will be controlling.

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