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InsuranceMan 2.0

Tuesday Morning Insurance Tidbit - Valuation

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Good Tuesday Morning Everyone,

     It is time again for the weekly installation of your Tuesday Morning Insurance Tidbit.  Today I am going to discuss valuation, and even divulge a bit of a secret that most insurance folks have no idea exists, but can save you some premium dollars.  Who the heck does not want to save some moola where they can?!?!?!!??!

     First, before the big "reveal" on saving them greenbacks, let us discuss valuation.  When was the last time you took a good hard look at your insurance coverage, specifically in regards to valuation of your equipment, stock, and just plain, good old fashioned stuff!?!?!  Many purchasers of insurance buy a policy (not necessarily knowing what they are buying) and tend to forget about it unless they need it in the case of some unfortunate loss or accident.  This happens all the time.  As well, if your agent is a "hit it and forget it" kind of sales person, they probably are not asking about any changes that may have occurred throughout the initial start up months, or years for that matter.  THIS IS NO BUENO!!!!!! 

     Lets start with the folks that are just new to the distilling world.  If you are just starting up, there is a lot of change that takes place over the first several months.  You may be adding equipment, you may be adding value in product that you are producing, things change quickly during this initial phase.  What are you doing to ensure that you have the proper coverage?  That chiller that just arrived that you have been waiting on for months, is that covered under your policy?  Do you know?  How can you tell?  VALUATION!  You should have a certain limit of insurance covering for the replacement cost of all the stuff you have in your distillery.  If that value was only inclusive of the items in your location at the time you bound the policy, did you pad that number enough to include that new chiller?  If not you are under-insured and could face a co-insurance issue should something go wrong.  One of the most overlooked items in regards to insurance is valuation and making sure you are keeping it at a level that you need in order to cover a loss.  The same goes with product.  Day one, the first day you bound the policy, you probably did not have product sitting around (unless you sourced a bunch of stuff, then maybe you would have coverage).  Fast-forward a few months ... now you have, let's say, $15,000 worth of hooch that you have made and it is waiting to go out.  Is it covered?????  More than likely it is not, and it needs to be added to the policy.  Or perhaps you just received that big shipment of bottles, caps, closures, boxes ... is that value covered on your policy????

     Insurance policies are dynamic, they are not static.  You are not stuck with the policy that you bought day one.  You can make changes to your policy at any time you wish.  Adding or reducing coverage can happen at anytime you wish, but it is up to you to let your insurance person know what is happening (or if you are working with me, I periodically check in, especially in the first year) to make sure you are covered correctly.  Yes, there may be more premium associated with making the changes, but better to pay a bit more knowing you have coverage than gamble with your business that you have worked so hard to build.  CHECK YOUR VALUES!

     Stock on hand is a largely overlooked item.  That $15,000 in hooch that you have from above has now grown to $50,000 lets say ... but your policy is still only covering you for the original $15,000.  Your policy is only covering you for whatever amount is shown in the policy forms/declarations, not a penny more.  So if your policy still only shows that you have $15,000 worth of stock coverage, that is all you are covered for.  So if you were to lose all $50,000 you are not going to be happy with what the claims folks have to say.  The maximum amount shown in this case was $15,000 but you had $50,000 in stock, well the insurance carrier is not going to say, "That's ok Mr. or Mrs. Insured, we can see you had more stock so we will make it all good for you."  NO!  In fact they are going to say something very different in deed.  They will actually say that you were only paying premium on $15,000 when you actually had $50,000 in value so you knowingly under-insured your stock and have violated the co-insurance clause of the policy.  So now, not only are you going to be out $35,000 in uninsured stock ($50,000 - $15,000 = $35,000 you did not have insured) but they are going to hit you with the co-insurance penalty, and you will not even recover the full $15,000 that you did have insured.  I will explain Co-insurance some other time, but the point is this ... MAKE SURE YOU HAVE THE CORRECT VALUATIONS SHOWN ON YOUR POLICY!!!!!  Then there is aging stock ... UGH!  Don't even get me started on this one.  Almost all carriers and certainly dang near ever insurance agent have no idea what to do when it comes to aging stock.  Again, that is where I come in.  I built the only (and proprietary) spreadsheet known to man that can accurately depict the daily attained value for aging stock.  This is a slippery slope people ... Don't trust just anyone to assist you with this aspect of coverage, here you need to trust a true expert.  Maybe we will cover this in detail a few Tuesdays from now, but for the time being, if you have been operational for years and have product put up that is aging, CHECK YOUR POLICY!  You do not want it to be covered at the value it was when it hit the oak (or however you are aging it) day one.  Three years later, after it has gained value in maturation, if you have a loss, you don't want to be paid on what it was worth three years ago, if you can even get that, damn co-insurance again!

     OK, on to the "big reveal", the one that can save you some dough, some dead presidents, some cold cash.  Did you know that even if you don't own the building you are in, you may still have building value on your policy????  What????  Yes, it is true.  Even if you are in a leased space, you may be able to have building value.  How you say?  "Why is this a thing?", you wonder.  Some items in your distillery can actually be classified as "building coverage".  If it is permanently affixed to the building via plumbing, hard wire, bolted to the floor, or built into the building, then it can be considered "building".  This one slips right past 98% of all insurance folks.  So why would you want to insured these items as building as opposed to "contents"?  It is WAYYYYYYY cheaper!  "Contents" is loose stuff that can be picked up and walk away with, stolen, absconded, to be seen nevermore.  So the insurance rate is higher on these types of items.  Now, you are smart readers here on the forum so I know you know where this is going already, but I am going to spell it out anyway.  Aside from your product, what has the most value and therefore costs the most to insure??????  Your "big ticket" items.  Your still, your mash tun, your chillers, your big equipment.  So if you are paying "contents" rate on these items, you are probably paying hundreds if not thousands of dollars more than you should be since there items are more than likely not "contents" at all since they cannot just up and walk away.  Ahhhhh ... it take the keen eye of InsuranceMan 2.0 to know these things and my super-ability to save you money.  That is why I am the superhero insurance agent to so many, year of experience and the supervision to see where you can save money!

     The last valuation item I want to caution you about is Tenant Improvements and Betterment's, or TIB's.  If you have gone into a building and done a ton of work to make it "distillery ready", have you insured against that loss?  Even if you don't own the building, you can insure your investment into that property that you have made to make it workable for your business.  Some people have tens of thousands if not hundreds of thousands wrapped up in TIB's, but if you are not insuring that value, then you don't have insurance for that value.  Check your policies, people!

     Last but not least is if you do own your building, is the value there correct?  Again, it could come in the way of improvements that you have made over the years, or even just the fact that the cost of construction is constantly going up.  When was the last time you really looked at what your building is worth and checked your policy to make sure it is reflected with a correct value?  If you are like many, it has been quite a while.  Again, that is why I am here, to assist you in making sure you have the correct coverage for accurate values.  

     So, until next time, this is the superhuman, insurance powerhouse known as "InsuranceMan 2.0" signing off.  Stay tuned for the next installment of your Tuesday Morning Insurance Tidbit, with me, InsuranceMan 2.0.  Now, I am off!!!!!!! I hear the cries of some poor soul with immediate valuation needs.  Stay vigilant!!!!!


Aaron Linden

InsuranceMan 2.0


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