Total Insurable Value (TIV) [sometimes called Total Insured Value] is the complete value of property, inventory, equipment, and business income covered by a company’s insurance policy(ies). Should one insurance company be the insuring carrier for all these policies, it is the maximum amount that they would pay out if there were a covered actual total loss. In other words, if your insured property was damaged or destroyed to the point it could not be restored or recovered.
Seems pretty straightforward, right? Yes, but as an insured, it is critical for you to understand the proper calculation of your TIV. Leaving out key pieces of equipment or inventory might result in an important difference in the amount you for which you are covered.
In most insurance policies, there is 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.
As you might expect, a higher TIV comes with a higher insurance premium. Some business owners decide on a lower TIV amount or a higher deductible to offset costs. But there are concerns with both these approaches.
Choosing a Lower TIV
Opting for a lower than actual TIV may save you on the front end, but should you have a total loss, consider what you may be faced with:
- Is your property completely paid off? If not, what might you owe?
- 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 capital to restart this or another business?
Those items can add up quickly. Saving several hundred dollars per year could cost you thousands in this scenario.
Choosing a Higher Deductible
Similarly, 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 in addition, to your deductible, you are responsible for a certain amount 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.
When making your decision on 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 policies. This can give you a better perspective on the value of your coverage.
Reach out to Brandon Patterson on our team to discuss your TIV and better understand how you can be covered if the worst were to occur.