Cash Value vs. Replacement Cost for Contractor Equipment
Now is the time of the year that many contractors are starting to ramp up their business by purchasing new equipment for the upcoming spring season. While many are ready to hit the ground running with their new equipment, make sure you do not put your business in jeopardy by having improper insurance in place for your newly purchased equipment (whether it is new or used).
If a contractor’s equipment, that is valued at over $2,500, leaves the designated premises to go to a jobsite or anywhere in between it needs to be scheduled equipment on your policy. The equipment can be protected one of two ways; the first being Actual Cash Value (ACV), which factors in depreciation of the item and what you could sell the item for. The alternative is, Replacement Cost (RC), which is the amount you would need to purchase a similar piece of equipment in 2019, including the sales tax of the item.
In my opinion, Replacement Cost is the way to go. While it may cost more upfront it can create a less stressful situation once a claim is made, because it limits the potential for haggling with an insurance adjuster whom would typically undervalue the worth of your piece of equipment. If you were to consider Actual Cash Value, you would more than likely need to come up with more money to buy a new piece of equipment, unless by chance you’re able to find a similar piece of equipment (comparable year, make, model, condition, number of hours, etc.).
Your smaller pieces of equipment (weed eaters, blowers, rakes and shovels etc.) can be protected under a “Blanket” limit of $10,000 or more. These items do not need to be scheduled on your policy. As mentioned above, I recommend doing Replacement Cost coverage for your equipment, but Actual Cash Value is still an option that is available.
Conversely, Insurance for trucks and trailers on a commercial auto policy are usually based on Actual Cash Value, not replacement value.
Botson Insurance offers a specialized Green Industry insurance program that includes replacement cost coverage, the lowest liability rates in Ohio and much more. Click here to learn more about our Green Industry Insurance Program.
For additional questions on this topic or any other risk prevention strategies, please feel free to contact Greg Botson of Botson Insurance Group at 440-537-2292.