Have you ever heard the words “Total Insurable Value” (TIV) and wondered how that was different than what you were already insuring? You’re not alone, as it can be a little confusing.
TIV (sometimes called Total Insured Value) is the complete value of all the property, inventory, equipment, and business income covered by a company’s insurance policy(ies). If there is one insurance company holding the coverage for all these policies, the TIV is the maximum amount that they would pay out if there were an actual total loss that was covered in a claim. So, the worst case scenario where your insured property was damaged or destroyed to the point it could not be restored or recovered.
That may seem fairly straightforward, but as an insured, it is critical for you to understand the proper calculation of your TIV. Leaving out key information on your equipment or inventory might result in an important difference in the amount you for which you are covered.
Often, insurance policies will have a “Valuation Clause” that will contain a formula for your TIV. You may need to review tax records, purchase orders, sales records, and other financials to properly calculate the amount. In the case of business income, a 12-month window is typical to determine revenue generated for insurance purposes.
Does a higher TIV result in a higher insurance premium? Almost always, yes, but that also comes with a higher level of coverage. Some business owners decide on a lower TIV amount or a higher deductible to offset costs. But there are concerns with taking either of those approaches.
Impacts of Choosing a Lower Total Insurable Value
Opting for a lower than actual TIV may save you on your premium cost, but should you have a total loss, consider what you may be faced with:
- Is the property you own completely paid off? If not, what could you owe in this scenario?
- Do you have leased property or equipment that you would be responsible for paying on for damages, total loss, and/or loss of use?
- Will you have bills for inventory, taxes, or other outstanding debts that still need to be paid?
- Is there compensation for yourself, your family, and/or your team that will still be needed?
- Will you want to have capital to restart this or another business?
Those items can add up – and very quickly. Saving several hundred dollars per year on premiums could cost you thousands in this scenario.
Choosing a Higher Deductible
Similarly, your costs might be high and money might be tight if you have a total loss that puts a stop to your revenue. A higher deductible might save you a small amount per year, and those savings may take many years to equal what you would forfeit should a total loss claim occur.
In addition, some policies contain co-insurance provisions for claims. This means that along with your deductible, you are responsible for a certain amount or % of the TIV. Talk with your agency to better understand how co-insurance may factor into a potential claim, as it may give you a better perspective on how much money you might actually receive for a total loss.
As you determine your TIV, start with the most accurate calculation possible. Then determine the amount of risk you want to take compared the amount you want to place on your insurance company’s policies. This can give you a better perspective on the true value of your coverage.
Reach out to our team to learn more about your TIV and better understand how you can be covered if the worst-case scenario were to occur.