What does Insurable Value Mean?
Replacement cost new of the building improvements.
Insurable Value is generally defined as:
“The cost of total replacement of destructible improvements to a property; may be based on replacement cost rather than market value.”
What it Means
Insurable Value is typically the replacement cost new of the building improvements only. In some cases, site improvements may be included. Most insurance companies only cover the building, however. Insurable value does not take into account land value, due to the fact that land is generally considered indestructible within the realm of real estate appraisal, nor is it insured.
Typically, the goal of this value is to understand how much it would cost, in today’s dollars, to rebuild the building in the even of a catastrophe.
Some insurance companies write policies differently so it is always a good idea to ask your insurance agent if the policy needs to cover site improvements or not.
Depreciation is also not part of this analysis because the type of value is replacement cost new with no depreciation or land value.
This type of value is most often used by lenders in combination with a mortgage, or insurance companies.
Typically, the goal of this value is to understand how much the building needs to be insured for, which affects your monthly insurance premium. For example, if a building has a lower insurable value, the monthly premium will be lower. If higher, vice versa.
Having the right insurable value means you are not overpaying or underpaying for insurance, and, if catastrophe strikes, there is enough coverage to re-build.
Refer to our Value Vault resource section for additional appraisal definitions and appraisal related topics.