Total Insurable Value

DEFINITION of 'Total Insurable Value'

The value of property, inventory, equipment, and business income covered in an insurance policy. Total insurable value, or TIV, is used in property insurance policies. Total insurable value can include the cost of the physical property being insured, such as a building, as well as the contents of the building, such as equipment. If the insurance policy covers a commercial property, any income lost if the property is damaged can also be included in the total insurable value.

BREAKING DOWN 'Total Insurable Value'

Determining the total insurable value involves conducting a full inventory of a building and its contents. This inventory may be organized using worksheets provided by the insurer, though businesses may also use detailed purchase and sale records used for tax purposes. For the insured, the critical aspect is to include all inventory and other items that are critical to business operations. If property, equipment, or inventory is excluded when determining the total insurable value, the insured may find the underestimation costly if a fire or flood occurs.

For policies that cover loss of income, insurers estimate the amount of income generated by the insured property and use this as a baseline when determining how much income would be lost while any damaged property is replaced. The amount of time it takes to replace damaged property can vary according to the type of business, but a 12-month window is typically used as a start off point.

The total insurable value is ultimately used to determine the maximum policy coverage limit. The higher the total insurable value, the higher the premium that the insured will have to pay for coverage. For example, a business with a total insurable value of $2 million and a rate of $0.3 per $100 of total insurable value will have to pay an annual premium of $6,000 ($2 million / $100 x $0.3). Businesses may choose to go with an amount of coverage below the total insurable value.

It is important to differentiate between replacement cost and insurable value, as the former is the cost of replacing damaged items with items of the same value and type. Insurable value differs in that it sets a limit as to how much the insurer will pay for an item, with the ultimate cost of item repair or replacement potentially exceeding the insurable value.

Most policies require the insured to pay a deductible before the insurer is required to cover any losses. Higher deductibles typically result in lower premiums, since the insurer will be responsible for losses after a higher cutoff. The insured may also be responsible for co-insurance.