One of the frequent questions we receive from our charter school clients is how insurance companies determine property values when there are claims.   For example, if a fire destroys a piece of equipment, will the insurance company pay for a new one? Or will the insurance company pay the amount the equipment was worth at the loss?

A typical property insurance policy for a charter school will determine a property’s value based upon Actual Cash Value. Actual Cash Value (ACV) is usually defined as replacement cost less depreciation. This will typically work fine for pieces of equipment that are relatively new. However, what happens with older equipment that may have depreciated significantly?   Unfortunately, we have found that many charter schools will rely upon older equipment for many of their operations that, if destroyed by a calamity, don’t have any value when it comes to replacing it through the insurance company.

The best way to get around this is to insure your items at a replacement cost. If you have Replacement Cost coverage, your insurance company will pay you to replace the equipment with “like kind and quality.”  Often, the cost to add Replacement Cost coverage is extremely cheap.

Many property insurance policies also include inflation protection. Inflation protection is a tool where insurance companies automatically increase the property values each year to adjust for inflation. Charter schools can still receive the right amount of money back for payment on a covered claim.

Some property insurance policies will be written at Agreed Value. An Agreed Value provision means that both you and the insurance company have agreed on a value in the event of a loss.   So, if your equipment is stolen or destroyed, the insurance company will pay the amount listed on the policy’s declarations page without any questions.

Tip:  Work with your agent to determine what kind of valuation your property insurance policy uses.   Find out if better options are available based on the amount and type of property your charter school has.