Q&A: Insurance to Value

November 17, 2021

How can you ensure an insurance policy adequately covers and protects the value of a property in the event of a partial or total loss? The key is insurance-to-value. The insurance-to-value ratio is the percentage of insurance coverage equal to the replacement cost of the insured property.

How is value assigned to a building?

There are several ways to assign value to a building. There is market value, which is the estimated price for which a building could sell in the current real estate market. In addition, there is assessed value, usually assigned by the municipality and used as a basis for property tax determination. Finally, there is the replacement value. Replacement value is the estimated cost of replacing or rebuilding a building, which includes the cost of materials, labour, permits, and debris removal.

In the case of insurance policies, the appropriate limit of coverage should be determined by the replacement cost valuation. As a result, the insured is able to avoid paying for underinsured properties in the event of a partial or total loss.

What happens if a building is not insured to value?

Underinsured buildings may suffer financial consequences in the event of a partial or total loss.

Total Loss

In the case of a total loss of an underinsured building, the financial consequences are straightforward. Imagine a building insured for $900,000 and suffering a total fire loss. The cost to rebuild a similar building is estimated at $1,200,000 at the time of the loss. Due to the insurance policy's $900,000 limit, the insured faces a $300,000 shortfall.

Partial Loss

When an insured suffers partial losses of commercial property, the Coinsurance Clause determines whether the insured is liable for underinsuring the loss. A claim's recovery is determined by the property's replacement value at the time of loss. The claim payment is reduced if the replacement amount is less than the coinsurance percentage. As an example, a policyholder has $900,000 of property insurance, and a fire causes $300,000 in damages. The amount of the claim is determined by dividing the amount of insurance purchased ($900,000) by the value at the time of loss ($1,200,000). This factor (75 per cent) is multiplied by the amount of the loss ($300,000 x .75 = $225,000). For a $300,000 claim, the policyholder would receive $225,000 (less any deductible).

How can property owners estimate a building’s replacement cost?

Underinsurance can have costly repercussions if the replacement cost is not correctly estimated at the time the policy is taken out. A professional appraisal is a good way to protect the insured's interests when valuing their property. Based on the information they have, the insurance company will calculate the replacement value.

Listed below are a few key factors to consider when evaluating a building, which should be provided to the insurance company for the most accurate replacement value estimate.

Age: In older homes, certain features may be more difficult to repair or replace.

Construction materials: Building materials have an impact on cost due to their custom features and quality of finishes. Fixtures, cabinets, flooring, appliances are also aspects to consider.

Size: Square footage and size play a role in the cost of replacing a building.

Furniture and valuables: Keeping an inventory of possessions and valuables ensures the building’s replacement cost is accurate and current.

Building codes: Buildings must meet certain safety thresholds according to updated building codes. Owners of older houses and heritage buildings must ensure their property complies with current building codes.


SWG PROPERTY – Commercial Property Liability is designed to cover hard-to-place property accounts. We can accommodate most realty-type risks, from stand-alone rentals and vacant dwellings, to large commercial risks, with an in-house capacity of up to $6,000,000.

Coverage Highlights:

Broad Form or Named Perils

Replacement Cost


Dependent on individual risk, age, construction, occupancy and town grade

Other Coverages Include:

Business Interruption, Rental Income

Flood, Quake, Sewer Backup

Crime – including Employee Dishonesty & Broad Form Money & Securities

Mechanical Breakdown

Extension Packages:

Personal Property of Officers and Employees

Growing Plants, Trees, Shrubs or Flowers in the Open; Limited to $1,000 per plant

Accounts Receivable

Stock Spoilage

Building By-Laws

Inflation Protection

Exhibition Coverage

Automatic Fire Suppression System Recharge Expense

Brands and Labels

Fire Fighting Expenses

New Acquired Locations (30 Days)


Equipment and Stock (Contents)

Debris Removal

Peak Season Increase

Contents Off Premises in the custody of Sales Representatives

Land and Water Pollution Clean Up Expense (Annual Aggregate)

Building Damage by Theft

Extra Expense

Valuable Papers

Off Premises Services Interruption

Electronic Data Processing Equipment and Media

Systems Breakdown Coverage

Fine Arts

Maximum value any one item; Any One Occurrence

Installation Floater

Professional Fees

Exterior Building Glass


Master Key


Most realty type risks are written on a “Premises” type form but full CGLs including Tenant’s Legal Liability are available.

We Cover:

Includes but is not limited to the list below. Contact us if you don’t see what you’re looking for.

Apartment Houses (with/out commercial occupancies)


Food Trucks/Hotdog Carts/Chip Trucks


Rented Dwellings

Retail Stores

Rooming Houses

Strip Plazas

Student Housing

Vacant Property

For more information, visit the SWG PROPERTY product page: https://swgins.com/product/swg-property.html

Content is current as of the date of broadcast and is subject to change without notice.