Are You Underinsured? Property Valuation and Coinsurance for Manufacturers
Many Manufacturers Are Underinsured Without Knowing It
Underinsurance usually isn’t a missing policy. It’s a property limit that hasn’t kept up with the equipment, inventory, and improvements you’ve added, combined with a coinsurance clause that can cut your payout if your limit is too low. Both can leave you short exactly when you need the coverage most.
How Underinsurance Happens
- Equipment and inventory grow, but limits don’t get updated
- Valuations are based on old or estimated numbers
- The difference between replacement cost and actual cash value isn’t understood
- Tenant improvements and newer machines never make it onto the schedule
What a Coinsurance Penalty Does
Many property policies include a coinsurance requirement, meaning you must insure to a set percentage of value. If you’re under that threshold at the time of a loss, the policy can reduce your claim payment proportionally, even on a partial loss. The result is a smaller check than you expected, when you can least afford it.
Replacement Cost vs. Actual Cash Value
This single distinction can dramatically change what you collect. Actual cash value factors in depreciation; replacement cost aims to replace without that deduction. Knowing which one your policy uses matters before a loss, not after.
How to Protect Yourself
- Reassess equipment and property values regularly
- Add new equipment and improvements to the policy as you acquire them
- Confirm your valuation basis and any coinsurance requirement
- Ask whether your limits would actually rebuild your operation today
Not Sure Your Limits Would Rebuild Your Plant?
A review checks your valuations, your valuation basis, and any coinsurance exposure so a covered loss doesn’t become an uncovered shortfall.
