Should My Commercial Property Insurance Have Replacement Cost or Actual Cash Value Coverage?

When comparing commercial property insurance policies, you’ll find that almost all policies include “business personal property” coverage. You’ll also likely notice that the type of business personal property coverage policies offer differs. Some provide “replacement cost” coverage and others have “actual cash value” (ACV) coverage. Here’s a look at the differences between these two types of coverages -- and which one is better for your Vermont business.

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Is Commercial Property Insurance That Has Replacement Cost or Actual Cash Value Coverage Better for My Vermont Business?

Business Personal Property Covers Items That Aren’t “Real Property”

Business personal property coverage is similar to the personal property coverage found in homeowners and renters insurance policies. It’s generally used to insure items that might be considered personal property but belong to a business rather than an individual. For instance, a commercial property insurance policy’s business personal property coverage might cover any of the following:

  • Moveable equipment

  • Supplies and inventory

  • Furniture

  • Computers, televisions and other electronics

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(Exact coverages vary depending on a policy’s terms and conditions.)

In insurance parlance, these items are things that aren’t “real property.” Real property is normally defined as land and permanent fixtures built on it. Permanent fixtures may include buildings, outdoor fixtures and machinery that’s permanently installed.

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Replacement Cost Coverage Pays to Replace Lost or Damaged Items

Business personal property coverage that’s replacement cost coverage usually insures covered items up to their full replacement cost, hence the name “replacement cost coverage.”

With a policy that offers replacement cost coverage, your Vermont business can likely expect to receive enough compensation to replace things that are lost, damaged or destroyed in a covered incident with new items. In most cases, your business could replace all of its personal property that was lost while only paying the policy’s deductible. (This assumes the property was covered and the extent of the damages doesn’t exceed the policy’s limits.)

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ACV Coverage Reimburses Up To the Fair-Market Value of Lost or Damaged Items

Business personal property coverage that’s ACV coverage provides less protection. This form of coverage normally only insures covered items up to their fair-market value, or actual value. Often, this is a depreciated value -- and less than it would cost to replace the items.

With a policy that offers ACV coverage, your business would only receive what items that were lost, damaged or destroyed in a covered incident were actually worth. While this would be equivalent to liquidating your business’ personal property, it can leave your business in a serious financial bind. To get new items, the business would have to pay the difference between the items’ ACV and replacement cost -- and that can be thousands, even tens of thousands, of dollars.

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Business Property Insurance with Replacement Cost Coverage Offers More Protection

Thus, if you want the best protection for your business, you should seek out a business property insurance policy that offers replacement cost coverage. It’ll help ensure your business is able to recover from a potential disaster.

Compared to ACV coverage, replacement cost coverage would be especially helpful if your business suffered a covered disaster and had to replace:

  • Hundreds of products that were kept in storage

  • Machinery or equipment that had depreciated significantly

  • Supplies that were needed to continue operations

  • Computers and electronics that depreciate quickly

  • Office furniture and decorations that aren’t budgeted for on a regular basis

A Vermont Agent Can Help Your Business Choose Commercial Property Insurance

For help finding a commercial property insurance policy that includes replacement cost business personal property coverage, contact an independent Vermont insurance agent. They’ll be able to request quotes for business property insurance policies from several insurers and show you a few different options that include this important coverage.

Topics: Business Insurance, Commercial Property Insurance

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