Property Coverage for Businesses with Changing Needs

Some businesses have very stable property insurance needs as the value of their non-building property doesn’t vary much during the year. For example, an accountant’s office will have furniture, telephones, computers, reference books, and so on. The replacement costs of these items won’t be much different in July than they were in April. Other types of businesses, however, experience wide variations in the values of their property. Florists tend to carry more stock around Valentine’s Day and Mothers’ Day than they do on most days of the year. Many retailers earn most of their profits during the holiday shopping season, so they must keep larger amounts of stock on hand. Warehouses and manufacturers may have highly variable amounts of goods for sale. Depending on the flow of orders, the value of their stock may change greatly from month to month or even more frequently.

A traditional property insurance policy, with one set limit of insurance for personal property, will not meet the needs of businesses like these. To secure enough insurance, they would have to buy an amount large enough to cover those times when values are at their peak. However, for much of the year they would be paying for more insurance than they need. Businesses in this situation may want to consider two coverage options: Peak season coverage and value reporting coverage.

Peak season coverage is appropriate for firms that can predict those time periods when their values will increase. Examples are florists, toy, electronics and clothing retailers during the holiday season, school supply stores in late summer, and costume shops in October. The coverage form states the location and type of the property, the amount of additional insurance, and the period of time during which the higher amount applies. For example, it might show that insurance on goods for sale will increase by $100,000 from October 1 to January 1. This gives the business plenty of coverage for the busy time but saves it from having to pay for all that coverage the rest of the year.

Value reporting coverage is for those firms with values that fluctuate all year long. This coverage requires the firm to buy an amount of insurance large enough to take care of the peak periods. However, the insurance company will charge a lower initial premium than that amount would ordinarily require. The firm then must make periodic reports of its values to the insurance company. Depending on the option chosen, the firm will send reports monthly, quarterly, or once per year. Again depending on the chosen option, the reports can show values as of the end of each business day, week, month, quarter or year. After the firm has submitted all of its reports for the policy period, the insurance company determines the firm’s average values and calculates the final premium.

Firms that choose the value reporting coverage must take care to submit the required reports on time and accurately. The form gives the insurance company the right to reduce claim payments for losses to the property when reports are late. The company can also reduce a loss payment if it finds that the firm underreported its values. The limit of insurance does not automatically increase if the reports show values higher than the limit; the firm must request an increase in coverage.

Any firm with variable property values would be wise to consider purchasing one of these types of coverage. With some careful planning, a business can limit its insurance costs while still getting the coverage it needs.

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