The maximum dollar amount an insurance policy will cover in the event that an insured asset is deemed lost. In real estate, this can include the improvements on the land, as well as the physical property that existed on the property, such as machinery and other equipment. Insurable value is can be a function of the full replacement cost of the property, reproduction cost, or depreciated value. Insurable value is typically less than the market value, as it excludes the value of land.
The higher the insurable value, the higher the insurance premium paid will be. For example, say a property has a total insurable value of $10 million. At a rate of $0.25 per $100 of insurable value, the landlord will pay an annual premium of $25,000 for insurance. To minimize these expenses, property owners may elect to cover an amount less than the total insurable value, or lock in a lower rate by paying a higher deductible.
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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
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