Do I insure my business assets for replacement value or actual cash value?
A fire could put our business out of business forever if we lacked business insurance. For this reason, few doubt that having insurance is the best investment to protect ourselves from the damage that may be caused by lightning, storms, floods, acts of vandalism, complaints, theft, or the aforementioned fire.
Commercial insurance, in addition to the business building, protects all fixed assets, machinery, and equipment included in the policy. But one of the aspects to take into account when preparing the policy is to consider whether we insure the assets of our company for their replacement cost (RC) or for the real cash value (ACV, for its acronym in English).
Although they seem two ways to solve the same problem, in reality with the first variant, if a claim occurs in the company in question, the insurer would assume the amount of money necessary to replace, replace or rebuild the damaged value. In other words, if the central oven of a bakery breaks down, then the insurer would provide the necessary funds to replace it.
While with the second option, the insurer would only pay the value of the damaged asset by surveying its depreciation over the years and use. The insurer would pay out the amount of money similar to what the oven would have in the second-hand market.
There is no doubt that the premiums for an ACV policy would be cheaper, but the funds it would provide after a loss could be insufficient to start a business that has suffered large losses.
Before signing a policy, it is important to discuss every aspect of the contract with a commercial insurance specialist. For this to guide you on what is most convenient depending on the type of company and the maturity of the business.