My Property Policy Covers Damaged Property - Good, Right?
Property policies cover damage or loss to property insured. Preferably at replacement cost... and hopefully with a suspension of coinsurance or any insurance to value provision.
Important to note:
1. Replacement cost is the cost to reconstruct the insured structure as a new building, as-is and with no improvements
2. Many municipalities require a structure be torn down, including the undamaged portion, if the damage exceeds a specified threshold percentage of the overall structure or if impaired structural integrity
Issues with above:
1. Replacing a structure will require adherence to current building code... a cost not contemplated in the description of replacement cost
2. Property policies cover damaged property... What about the undamaged portion required to be torn down and associated costs
Ordinance and Law helps complete the recovery for an insured. Because building mechanicals and other items can be considered "building property" under an insurance policy, this coverage extension can be helpful in various circumstances.
Consideration should be given to time element, new ordinances written into effect between the time of loss and actual rebuild, improvements and betterments, and equipment breakdown.
Selecting appropriate values is of critical importance. Location is an important consideration as is construction type and other current characteristics. Additionally, a building's foundation is not automatically covered in the standard property form ~ a new foundation can be required in many instances where a tear-down is enforced. Not rebuilding defaults standard policy recovery to actual cash value. Actual cash value is typically determined on a case by case basis and can substantially reduce recovery.
Varying terms apply across a wide variety of property coverage forms and endorsements. Always work with an experienced representative when creating your insurance program.