The tariffs being issued by the Trump administration affect many businesses, and many aspects of business, including your business insurance. Now is the time to review your how your policy is structured.
What’s Covered?
Your business insurance covers a lot of stuff, your stuff (referred to as “contents”); inventory, work in progress, finished products, and the property of others in your care, custody, and control. Basically, everything that, if your building were turned upside down, would fall out. However, not all your stuff is created equal and not all of it is automatically covered.
Your first step is to review what’s covered in your business insurance policy. This is a great time to call your insurance agent. Your second step is to understand what this coverage means.
Here are a few important things to consider:
- Your premium is based upon dollar limit on your stuff. This is not a place to skimp to reduce your insurance cost because, in the case of a loss, you’ll pay more to replace your contents.
- What is the best way for you to value your stuff while maintaining a balance between your coverage and your premium?
- Exactly what is covered? You should have a detailed description of all your contents.
- How are your contents valued in your policy?
Replacement Cost vs Actual Cash Value – A Valuation Dilemma
Let’s start with an example – your stock. Your contents may be valued at Replacement Cost, but stock, although usually considered contents, is not included in this case unless you specifically list it. It’s an extra step that incurs no extra charge.
Commercial Insurance requires that you cover your contents to a percentage of the ‘value’ at the time of loss. If the policy is based upon Replacement Value, then you need to insure for a higher limit than if the policy were based upon Actual Cash Value (which deducts for depreciation). Using Actual Cost Value will result in a lower required limit, and a lower payout in the event of a claim.
Now, Let’s Talk About the Tariffs
Most businesses find Replacement Value is the best financial choice. If there is a fire, your inventory and raw materials are gone, and you need to buy new ones ASAP to replace them and get back up and running. Let’s say you are a steel shop. The cost of the steel you had in inventory was a lot less than what it will cost to replace it now with the new tariffs in place. Remember, the limit you need is the limit that makes sense at the time of loss.
You don’t have to change the valuation of everything. Sometimes you can separate different types of contents with different limits. Sometimes you can separate out different types of contents for different risks of damage. Sometimes you can separate out different types of contents at different valuations.
Now is the time for a conversation with your business insurance broker, before something happens. Variations in contents, valuation, and level of risk can get complicated, and you want to make sure your coverage fits the needs of your business.
