Insurance values are based on whatever the cost might be today to replace property that has been damaged or destroyed.
Prior to assessing your business property's worth for insurance purposes, it is important to note two things:
1. Insurance value is not market value —
If you decided to retire from practice and sell your business property, the market price for that property will seldom, if ever, coincide with its replacement value. And, if you own the building, its market value will include the value of land, which will endure even if the building is damaged or destroyed.
2. Insurance value is not the depreciated value of the asset ledger you keep for income tax purposes —
Tax depreciation is an artificial form of valuation that usually has little or nothing to do with the replacement cost.
If the furniture, fixtures, improvements, betterments and equipment in your office are all relatively new, the capital cost will still be recent and acceptable for insurance replacement cost purposes.
If these office contents are more than five years old, your record of the original capital cost, updated for inflation, will provide a good guide. Your equipment suppliers should be able to advise you on the amount of inflation to apply in estimating replacement values for older contents. You will need to keep track of property additions and dispositions so that this information is kept as current as possible.
Your OMA office/clinic policy automatically provides base coverage of $100,000 for property, with the option to lower the limit to $75,000. If the value of your office contents is in excess of the $100,000 limit, your program provides the flexibility to buy up the limit to meet your unique needs.
The insurance value of the building is based on the cost of replacing it with a new structure of similar kind, size and quality on the same site. It should be noted that the building valuation is based on the same site, but if the loss is considered constructive — meaning that it would cost more to repair than to replace — you are at liberty to actually rebuild at any new location of your choice.
As noted, if the building is less than five years old, the original construction cost information may still be valid. After five years, increases in general contracting costs and materials due to inflation should be applied to ensure accuracy, and/or you could work with a local building contractor to keep the values current. As your preferred office/clinic insurance supplier, HUB International can provide building cost inflation indices as well.
Some practices occupy older buildings in downtown neighbourhoods. In the event of destruction, it is unlikely that a building of this sort would be replaced with a structure of similar kind and quality. Also, the loss could lead to the decision to not rebuild, to rebuild elsewhere, or even to retire depending on the stage of one's career cycle.
You may wonder, under these circumstances, whether you really need to insure for replacement cost.
Keep in mind that most property losses are partial, not total. In most cases, you will be faced with restoring your property as quickly as possible to maintain operation. The prompt and expedited purchase of new materials, equipment and fixtures will be a part of this process.
In the event you choose to retire given the loss, you will likely need to restore the premises to a functioning, viable business to ensure it is marketable.
Your tax accountant, real estate representative and insurance broker do not have the professional qualifications to assess your property for insurance purposes. It is possible to purchase a professional appraisal to establish a valuation baseline and the additional cost of this may be a good investment.
However, the information required to make a valuation can be produced from your own records, local building contractors, your equipment and fixture suppliers, and your inventory records. Once established, it should be possible to update the information annually without undue difficulty. Keep current photographs of the office and its contents in your insurance file.
Finally, make sure you will always have access to your insurance information when you need it most. Do not keep the file at the office; make duplicates and keep the information at more than one convenient location.
For information about business property insurance and to obtain a quote, call the dedicated OMA line at HUB International at 1.855.662.0500 or visit www.omainsurance.com. HUB International is the only OMA-endorsed provider for office/clinic insurance.