Property is considered to be anything of value and includes:

  • Real Property: Land and the permanent things on it, like buildings, outdoor fixtures, permanent machinery, and equipment. **Helpful Hint: When insuring restaurants, booths, kitchen grills etc. that are not easily moved are considered part of the building property, not business personal property.
  • Business Personal Property: This refers to all other property that is not classified as real property and can be easily moved, such as computers, telephones and office furniture. There are three different ways to determine the value of property (Valuation: RC, ACV, or FRC):
    • Replacement Cost (RC): The amount of money it takes to replace damaged or destroyed property with new buildings, equipment and furnishings.
    • Actual Cash Value (ACV): The replacement cost of property, less the accumulated depreciation for age and wear.
    • Functional Replacement Cost (FRC): Used occasionally for building values, this refers to the amount it would cost to repair or replace the damaged building with less costly common construction materials and methods. This means the method or materials are functionally equivalent to obsolete, antique or custom construction used in the original construction of the building.

Often we see clients or agents try to insure a property for tax or market value. As the cost of building increases and market values decrease, this can be a bad decision should a loss occur.

So how does one decide what their property is worth?

Use a valuation tool such as E2Value. If you do not have access to one, let us know and we can assist. Often carriers will return a submission when quoting or an inspector will catch that the building is undervalued. We should be able to justify the value of the property, or risk having to increase coverage or lose the policy altogether.

When determining the value of the business personal property, review receipts and expenses. Take inventory of stock and estimate the average value of it in any given week. If there are antiques or other hard to replace items, have them appraised and include the appraisal in your submission. In addition, if the business is seasonal in nature, consider adding a peak season endorsement which provides extra protection if the business suffers a major loss during their specified season. For example, a flower shop may have a much larger inventory during Valentine’s Day.

Now that we know what property is, and how to value it, there are some other valuation considerations to review.


Some insurers will allow the client to insure for less than 100% of the replacement cost, but it is not always the best idea. If there is a co-insurance clause, the client will pay a penalty if the insurance valuation is underreported or you insure for less than 100% of the replacement value, depending on the coinsurance percentage chosen.

Here is an example to demonstrate:
Loss Recovery Formula

(Amount of Loss x Limit of Insurance / Limits of Insurance Required) – Deductible = Loss Recovery


The insured decides after four renewals that the building can remain insured at $250,000. It is still insured at replacement cost with the 80% coinsurance clause. He does not review his valuation to make sure the replacement cost valuation hasn’t changed. Midway through the busy summer season, another fire damages a majority of the building.

The replacement value of the building as determined by an independent appraisal$380,000
Coinsurance requirement80%
Minimum coinsurance limit$304,000
Insured limit$250,000
Limit satisfies coinsurance minimum limit ($250,000/$304,000)No
Reported loss$150,000
Less coinsurance penalty(.82)
Less deductible($1,000)
Net Insurance Recovery$122,000

Cause of Loss

There are three typical options for cause of loss: special, broad or named perils. Based on the ISO (Insurance Services Office Inc.) form, the difference in coverage is important. Keep in mind that often carriers create their own forms and are not using the ISO version, so this may not apply to all carriers. It is important to review each policy carefully.

Basic Cause of Loss Form (CP 10 10) provides coverage for:

  • Fire
  • Lightning
  • Explosion
  • Smoke
  • Windstorm
  • Hail
  • Riot
  • Civil commotion
  • Aircraft
  • Vehicles
  • Vandalism
  • Sprinkler leakage
  • Sinkhole collapse
  • Volcanic action

Broad Cause of Loss Form (CP 10 20) provides coverage for:

The basic cause of loss perils and:

  • Falling objects
  • Weight of snow, ice or sleet
  • Water damage (in the form of leakage from appliances)
  • Collapse from specified causes

Special Cause of Loss Form (CP 10 30) provides coverage for:

  • Any loss from any cause except those specifically excluded.

You can see that the type of valuation, coinsurance percentage option, and cause of loss can vary greatly from policy to policy.

Be sure to read the policy carefully to understand all coverages, limitations and exclusions.