Why It’s So Important to Update Insurance Policies.

By Frank Thompson on Apr 04 in Safety & Loss Prevention.

Inflation has been a major topic of discussion lately, so it’s probably been on your mind. In fact, with the Consumer Price Index rising by 7.9% as of February 2022, we’re seeing the fastest price hike since 1982. As you’ve likely noticed any time you’ve had to pay for something, nearly everything costs more now. But you should note that inflation affects more than you might imagine—as it even has an impact on your insurance policy! So while you try to figure out how to adjust to the higher prices, take the time to update your propane insurance policy to reflect inflation. Here’s why it’s important to do this.

Compare Past Building and Replacement Costs with Today’s Expenses

The reason you have propane insurance is in case the unexpected happens and your property is destroyed. This could refer to extreme weather damaging your propane tanks or a fire burning down your business property. Either way, you want to have enough insurance coverage to pay for repairs and replacements to make your business whole again.

But due to inflation, you’re simply going to pay more for a new propane tank now than you did five years ago. Similarly, the company rebuilding your property after it’s been destroyed will need to pay more for building materials than they did five years ago.  All commercial insurance policies have a co-insurance requirement, generally falling between 80-100% of replacement cost.  With costs on the rise for nearly everything right now, it’s more important than ever that you meet your co-insurance minimum so you can receive your maximum benefit in the event of a loss. Basically, you’re more likely to go over your coverage limits now than you were before, as that $500,000 limit definitely won’t go as far now as it once did when it’s time to repair, replace, or rebuild business property.

This is why protecting your propane business from inflation should start with reviewing your coverage limits. In most cases, your insurer will recommend that you increase the limits of your policy, or even double them when it makes sense. The premium will go up, too, but it will still be more cost effective than not meeting your coinsurance requirement going over your coverage limit and having to pay the remainder out of pocket!

Understand the Difference Between Replacement Value and Actual Cash Value

Another detail to consider is how your insurance will replace your business property. This means you need to know what’s being used in your insurance policy: replacement value or actual cash value. So, what’s the difference?

The replacement value is the amount of money it would cost to rebuild or replace your property. So, if your office building burns down, replacement value is the amount of money it costs to rebuild it from the ground up today—taking into account the price of construction materials and labor now.

On the other hand, actual cash value is the replacement cost minus depreciation. This typically means you’d get market value for the property, which doesn’t always add up to the amount it would cost to replace it. This is especially the case when we’re experiencing inflation that affects the cost of building materials, as you might not be able to get your property replaced for the same cost you could sell it for.

Most insurance policies use replacement cost value, not actual cash value. But some insurers do allow you to opt for actual cash value for a lower rate than if you choose replacement value. Just know that if you go this route to save money on your premium, there’s a chance you won’t be able to actually replace your business property for the amount you get from your business insurance claim.

Talk to Your Insurance Company

If it’s been a while since you’ve reviewed your got a propane insurance policy, now is a good time to review it with your insurance agent. Many people forget about their coverage limits and whether they have replacement value vs actual cash value in their policy—until it’s time to file a claim. At that point, they may realize they don’t have the coverage to pay for their loss, and then it’s too late to do anything about it.

For this reason, you should set up a meeting with your insurance company agent to go over your policy. If your coverage is the same it was a few years ago, you might will likely need to increase it. And if you don’t have full replacement value cost on your policy, now is a good time to get it.

This is also the perfect opportunity to add any new business equipment or buildings to your policy, such as new propane tanks or storage sheds on your land. If it’s not included on your policy, it might not be covered, which means you’ll have to pay out of pocket to fix or replace it. And for anything that’s already on your propane insurance policy, ask about getting a current valuation on it to minimize the chance that you’re underinsured.

If you don’t have insurance for your propane-related business yet and you’re looking for a company that can provide protection for your property, come to PT Risk Management today. We’ll be happy to give you a quote on the propane insurance policy you need for your business!

Frank B. Thompson is a chartered property and casualty underwriter based in Phoenix. He is the owner of PT Risk Management, an independent insurance company specializing in writing propane and petroleum risk policies throughout the U.S.

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