Property insurance is something that we traditionally insist on having in place on commercial properties that we own. The thought of potentially sustaining major damage to one of our properties, and not being protected by insurance for the loss, would make most of us completely wince when thinking about it.
But what will your insurance company really pay you whenever you sustain a loss that you believe is fully covered by your insurance policy? We continually see ads and commercials telling us how much we can count on an insurance company to really be there and to do the right thing for us when we need them, but how much of what we hear around this is really true? There are stories we’ve sometimes heard over the years from friends and business associates, telling us the reality of what an insurance company really paid them to reimburse them for their loss, vs. what the person thought that they’d be paid by the insurance company instead.
After all, the insurance companies are in business to turn a profit, but you need to understand what this means in terms of how much they’ll really be paying you once you sustain a loss. With this in mind, earthquake insurance can be a prime example of where we can have a huge misconception about how much the insurance company will really be paying, whenever a claim is filed for earthquake damage. If you have a policy with a 15% deductible, for example, and it would cost $500,000.00 to rebuild the entire building, you’ll oftentimes need to pay for the first $75,000.00 in damage done to the building by an earthquake. So if the building sustains $75,000.00 in damage from an earthquake, you’ll need to pay that entire amount, as the deductible is calculated as being 15% of the total replacement cost of the building.
Keeping this in mind, something you may want to do is to have a chat with the people in the claims department of your property insurance company, before you ever need to file a claim with them. Run different scenarios by them that could potentially happen to your building, and include scenarios where the building sustains both partial and total damage to it. Ask them questions like, “How much would I be required to pay out of pocket in this situation?”, and “Are there any situations where I’d be required to pay more than my deductible to complete the total cost of the repairs?”
Because if there are any situations where the true cost of doing the repair work is $200,000.00, but the insurance company says that according to their own internal calculations, they will only be paying based upon a cost of $150,000.00 to complete the work, you will definitely want to know this beforehand, and then consider getting a new policy with a different insurance company.