Types of reimbursement

Do you want the destroyed items to be replaced by new items or would you prefer to receive compensation based on their actual cash value? You have some choices to discuss with your insurance agent or broker before purchasing your business insurance policy.

Examples of compensation

Example of a settlement based on replacement cost

Amount paid for a computer purchased 10 years ago

$800

Current price of a cumputer with the same features

$1,000

Compensation

$1,000

Example of compensation based on actual cash value

Amount paid for a computer purchased 10 years ago

$800

Current price of a cumputer with the same features

$1,000

Depreciation ($40 a year for 10 years)

$400

Compensation ($1,000 - $400)

$600

For business property

Following a loss, under your business insurance policy, your insurer will indemnify you for the items that were damaged based on their cash value when they were damaged, i.e., taking wear and tear and depreciation into account.

However, when you purchase your insurance policy, you can ask to be indemnified based on “replacement cost”. This means the items will be replaced without taking depreciation into account. If you decide not to replace the damaged or stolen items, you will be indemnified for the items based on their actual cash value.

No matter your choice, before replacing a damaged item, if it can be, your insurer will have it repaired.

For the building

For a building, your insurer will have the damaged portions repaired or rebuilt. If you opt not to have your building repaired or rebuilt, your insurer will reimburse you an amount of money based on its actual cash value.