Total Insurable Value

Total insurable value (TIV) is the amount an insurance policy covers in terms of property, inventory, equipment, and business income. Total insurable value can include the cost of the insured physical property, as well as the contents of the building, such as machinery and other equipment. If the insurance policy covers a commercial property, income lost, due to damage to the property, can also be included in the total insurable value.

Determining the total insurable value involves conducting a full inventory of a building and its contents. The insurer may provide worksheets to help organize inventory. Businesses may also show specific purchase orders and sales records used for tax purposes. For the insured, it is necessary to include all inventory and other items that are critical to business operations. Exclusion of essential equipment or inventory from total insurable value may result in a costly underestimation after sustaining a loss.

For policies that cover the 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.  The valuation clause of the policy usually contains the formula for calculating TIV. 

The total insurable value determines the maximum coverage limit for the policy. The higher the total insurable value is, the higher the premium will be for coverage. For example, a business with a total insurable value of $2 million and a commercial property rate of $0.3 per $100 of TIV will pay an annual premium of $6,000 ($2 million (TIV) x $0.3/ $100). Businesses may choose an amount of coverage below the total insurable value.

It is essential to differentiate between replacement cost and insurable value when choosing coverage. Replacement cost is the cost of replacing damaged items with items of the same value and type. Insurable value sets a limit to how much the insurer will pay for an item. The cost of item repair or replacement can potentially exceed the insurable value.

Most policies require the insured to pay a deductible before the insurer covers losses. Higher deductibles typically result in lower premiums, since the insured assumes more risk and financial responsibility for claims. The insured may also be responsible for co-insurance with losses.