Katerina Shum  

Should the Sum Insured Be Increased for Policy Renewal?

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Katerina Shum offered 5 tips in favor of reconsidering the sum insured prior to corporate insurance policy renewal.

Normally insurance policy is concluded for the period of 1 year. Before signing the new one it’s worth considering all alterations that took place during the past year such as transfer of title, remodeling of the building, modernization of utilities or even change of activity that is carried on within the insured premises. Besides, you might want to consider adding or excluding some items from the list of insured objects. 

As a result sum insured can add up to higher or smaller amount.

  • Sum insured is bound to decrease gradually if adjusted for depreciation. This is relevant if the insurance policy recognizes book value as the benchmark for calculating the indemnity amount.
  • If the  replacement value is agreed on as the benchmark for calculating the indemnity amount instead, the sum insured is more likely to grow in the light of comprehensive market conjuncture.
If you expect your insurance policy to cover your possible losses in full it is recommended that sum insured be equal to the replacement value of the property insured.
Of course, replacement value is the best choice here as in this case indemnity should be sufficient to cover the replacement costs.

Please make sure to address the following issues when preparing to sign the insurance agreement for the next period:

  1. Make sure that last year your property was appraised correctly and the value is still relevant. It’s best to compile the detailed list of the objects you would like to insure. Double check for the access system, stand alone signs or transformers located in separate buildings to be mentioned in the insurance policy. Of course, the sum insured should comprise the value of all the insured elements.
  2. If the real estate objects are insured based on the book value, it is recommended that the policy be renewed with the basis of value being replacement value. This will enable you to receive the indemnity in the amount not adjusted for depreciation. Book value however very rarely equals the replacement value of the insured object.  
  3. The insurance sum is bound to grow if the national currency has depreciated over the last year.  For the policies that were originally concluded several years ago the sum insured should be increased due to the recent and gradual currency exchange rate fluctuations. Otherwise the indemnity will not cover the cost of repair or replacement for the lost property.  
  4. The cost of spare parts, equipment and works is directly tied to the exchange rate and inflation rate. Therefore it’s best to take these factors into consideration when defining the accurate amount for the sum insured.  
  5. Should your policy cover both movable and immovable property it’s recommended that the insurance policy be extended for business interruption as well. This will enable you to be indemnified for indirect losses along with direct property losses. Business interruption insurance ensures that you receive equivalent of the lost profit until the insured object is fully restored or for the period stipulated in the agreement. Normally it covers 12 months.

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