What Is Total Insurable Value (TIV)?
Total insurable value (TIV) is the value of property, inventory, equipment, and business income covered in an insurance policy. It is the maximum dollar amount that an insurance company will pay out if an asset that it has insured is deemed a constructive or actual total loss.
Total insurable value (TIV) may include the cost of the insured physical property, as well as the contents within it, such as machineryand other equipment. If the insurance policy covers a commercial property, loss of income as a result of damage to the property can also be factored into the total insurable value (TIV).
Key Takeaways
- Total insurable value (TIV) is the maximum dollar amount that will be paid out on an insured asset when deemed to be a constructive or actual total loss.
- The maximum coverage limit for an insurance policy is determined by conducting a full inventory of a property and its contents.
- Total insurable value (TIV) may include the cost of the insured physical property, the contents within it—such as machineryand other equipment—and loss of income.
- The higher the total insurable value (TIV) is, the higher the premium will befor insurance coverage.
How Total Insurable Value (TIV) Works
Total insurable value (TIV) determines the maximum coverage limit for an insurance policy by conducting a full inventory of a property and its contents. The insurer may provide worksheets to help organize inventory. Businesses might also show specific purchase orders and sales records used for tax purposes.
For the insured, it is necessary to think carefully about each item and its worth. All inventory and other items that are critical to business operations should be taken into account. Exclusion of essential equipment or inventory from total insurable value (TIV) may result in a costly underestimation after sustaining a loss.
Thevaluation clause ofthe policy usually contains theformula for calculating the total insurable value (TIV).
For policies that cover loss of income, insurers estimate the amount of revenue generated by the insured property and use this figure as a baseline when determining the amount of income lost while replacing the damaged property. The time it takes to restore damaged property will vary according to the type of business, but a 12-month window is typical.
Example of Total Insurable Value (TIV)
A business with a total insurable value (TIV) of $2 million and a commercial property rate of $0.3 per $100 of total insurable value (TIV) will pay an annual premium, the specified amount of payment required to provide coverage under a given insurance plan, of $6,000 ($2 million (TIV) x $0.3/ $100).
Special Considerations
The higher the total insurable value (TIV) is, the higher the premium will befor coverage.Sometimes, to minimize these expenses, property owners may opt to protect an amount less than the total insurable value (TIV). Alternatively, they might lock in a lower premium by paying a higher deductible—out-of-pocket costs to be paid before insurance coverage kicks in.
Most policies require the insured to pay adeductiblebefore the insurercoverslosses. In some cases, it’s possible to elect for higher deductibles, which typically result in lower premiums since the insured assumes more risk and financial responsibility for claims. The insured may also be responsible forco-insurancewith losses.
Total Insurable Value (TIV) vs. Replacement Cost
It’s essential to differentiate betweenreplacement costand insurable value when choosing coverage. Replacement cost is the cost of replacing damaged items with items of the same value and type, while insurable value sets a limit on how much the insurer will pay for an item.
It's important to note that the cost of item repair or replacementcan potentially exceed the insurable value.
FAQs
Total insurable value is a property insurance term referring to the sum of the full value of the insured's covered property, business income values, and any other covered property interests.
What do you mean by insurable value? ›
noun. : the value of property stated in an insurance contract indicating the limit of indemnity that will be paid at the time of loss.
What is an example of insurance to value? ›
An Example: Your home will cost $150,000 to rebuild. Your replacement cost coverage is 80% with a 1% deductible. If your home is recorded as a loss, the insurer would pay $118,800 (120,000-1200) towards the repairs.
What is insurable value in appraisal? ›
The insurable value is less than the property's appraised market value, because it excludes the value of land on which the building stands. The formula for computing the insurable value is usually stated in the valuation clause of the insurance policy document.
How do you calculate total insurable earnings? ›
Deduct non-insurable gross earnings such as supplementary maternity benefits, executive officers earnings, not included in mandatory coverage in construction, and excess earnings above the annual maximum from your total gross earnings. The result is your total insurable earnings.
What is declared insurable value? ›
Declared value is based on how much the item costs to you, the shipper, and is often consistent with the customs value. Declared value is essential because it can help you save money on shipping insurance and avoid overpaying for the carrier's liability.
What is insurable risk with example? ›
Insurable risks are risks that insurance companies will cover. These include a wide range of losses, including those from fire, theft, or lawsuits.
How to calculate the insurance value? ›
The full form of IDV is Insured Declared Value. It is the maximum amount that an insurance company will pay out in case of a total loss or theft of an insured vehicle. The IDV in insurance is calculated as - the current market value of the vehicle minus depreciation based on its age and condition.
How do you calculate insurable need? ›
How To Calculate Your Life Insurance Needs. Most insurance companies say a reasonable amount for life insurance is at least 10 times the amount of annual salary. If you multiply an annual salary of $50,000 by 10, for instance, you'd opt for $500,000 in coverage.
How is insurance value determined? ›
When paying for the loss of your vehicle, insurance companies will typically utilize actual cash value, also known as market value, which takes into consideration the replacement cost of the vehicle minus depreciation. This is what you would receive for the vehicle if you sold it on the market today.
We'll focus on four strategies to determine how so much life insurance cover you'll require:
- Human Life Value. The current value of your potential profits, expenditures, debts, and savings is calculated using the Human Life Value (HLV). ...
- Income Replacement Value. ...
- Underwriters Thumb Rule. ...
- Premium as Percentage Income.
A valuation for insurance determines the value of replacing the item from new if it was lost or stolen, while the value of an item for auction is determined by the value it would sell for according to the market.
What is an example of an insurable value? ›
The total insurable value (TIV) is an important number for all commercial property policies because it is typically the number that is applied against the rate to determine the premium. Ex. [$1,000,000 (TIV) x $0.4 (Commercial Property Insurance Rate per $100 of TIV)]/100 = $4,000 annual premium per year.
What does total insured value mean? ›
Total insurable value (TIV) is the value of property, inventory, equipment, and business income covered in an insurance policy. It is the maximum dollar amount that an insurance company will pay out if an asset that it has insured is deemed a constructive or actual total loss.
What is an example of appraised value? ›
While numbers and formulas often determine an appraisal value, the fair market value is what a buyer is willing to pay. For instance, if your business's appraised value is $1 million and you can only find buyers at $750k, the fair market value is $750k.
How do you calculate sum insured value? ›
The sum insured you choose should be based on reliable estimates that take into account the size, location and quality of your house. It should cover the cost to demolish what remains of your house, plan and consent a new house and outbuildings to match the ones you lost and rebuild them from the ground up.
Is insurable value the same as market value? ›
When looking at homeowners insurance, fully insuring a home means covering its entire insurable value. The insurable value is different from the market value of a property; it can be higher or lower, depending on the circ*mstances.
What is the sum insured value? ›
What is the meaning of sum insured? The sum insured is the amount that the insurance company pays to the policyholder in the case of an unpredictable event, such as an illness. The amount paid is a reimbursem*nt for the costs incurred and not a fixed sum of money like the sum assured.
