Insurance terms that you should know.

Market value: what you would get if you sold your property - the selling value or what a willing seller would accept from a willing buyer.

Depreciation: an allowance for accrued functional obsolescence. Factors which are deemed relevant for insurance purposes include general condition, physical deterioration, age, utility and remaining serviceable life. For example, the normal life of a roof is 20 years. If a roof is 5 years old, 25% depreciation would apply if the policy was written on an actual cash value or market value.

Actual cash value: the rebuilding cost of the property today in its present condition less depreciation for "wear and tear."

Replacement cost: the cost of providing replacement of the property without a deduction for depreciation. This is, generally, today's estimate of the cost to rebuild your property. Depreciation is not considered. Replacement cost is usually determined by local building costs. Sources are engineering services like Boeckh's American Appraisal, local contractors, or appraisal companies.

Co-insurance: the insurance applying in the following example is subject to 90% co-insurance clause. Under the terms of this clause, you should insure the property at risk to a minimum of the stipulated percentage value. If you fail to do so, you will not be fully reimbursed for any loss that may occur. The manner in which the co-insurance clause would operate in the event of a partial loss is illustrated below and is merely a hypothetical example:

Insurable Value	Insurance Carried	Insurance Required 90%
$100,000	$60,000	$90,000

 

Amount of Loss	Policy Pays	Insured Pays
$10,000	$6,667	$3,333

The computation formula is "did over should." the insured carried $60,000, but should have carried 590,000. (up to $100,000 could have been carried).