Evaluating your business from time to time has several benefits. It is not only beneficial, but also necessary. Business valuation is important to estimate the insurance coverage for your business. Just like you need to evaluate the value of your personal assets for personal liability insurance, similarly you need to evaluate your business for insurance purposes.
Why would your business need a business valuation for insurance?
- If the business assets are undervalued, you will face problems while making insurance claims.
- If your business valuation is out-of-date and inaccurate, it becomes difficult to claim for insurance coverage.
- Businesses are prone to facing losses when claim pay-outs are hugely out-of-sync with current values of assets.
In which cases does your business need a valuation for insurance purposes?
Normally business valuations are done by experts. A business owner can approach a valuation expert in any or all of the following cases:
- If current asset and overall business valuations are out of date.
- If assets and machinery being used in the business are old and have different values in present scenario.
- If your business has undertaken a significant step such as downsizing or restructuring.
What are the common valuation methods?
- Reinstatement – the cost to repair and/or reconstruct/renew a business asset in a condition like new.
- Indemnity – the amount assured for business assets equal to the cost of replacing items with same or substantially similar equipments in a condition comparable to the existing assets.
- Market value – the recoverable value for assets no longer used.
How will business insurance valuation help me?
With an up-to-date business valuation, it becomes easier to make claims. It is also a requirement while renewing a policy with your carrier. Having a current business valuation also eliminates the need to apply valuation averages at the time of claim. It prevents underpayment of claims.