Have you had the good fortune of undamaged campground buildings for a number of years? When you least expect it, your KOA may experience loss or damage to a building that is covered by your insurance. Having your insurance policy pay to repair or replace that building is why you have insurance! However, what many KOA owners don’t know is that your insurance company has the right to determine not only the amount of the loss, but also whether or not you are carrying enough insurance. These rights are specifically written into every property insurance policy. If you do not have enough insurance, you may not get a large enough check to fully repair the damage.
The following information is meant to provide background on how property insurance works for both campgrounds and other types of businesses. Hopefully, this will give you a better understanding of insurance rules and how to avoid the penalties.
When selecting the limits for your building, one of your main priorities should be to determine the type of valuation. The most common option for valuing a building is “replacement cost”, although some campground owners opt for “actual cash value” property insurance.
Replacement cost is commonly defined as the cost to have a qualified contractor replace your building with a similar sized structure of “like kind and quality.” In other words, “enough” insurance is the amount it would cost to hire a contractor to replace the entire building, just as it stands today, with entirely new material. If you do not have enough insurance, the insurance company is allowed to only make a partial claim payment. Even if you only have a partial loss, a $50,000 fire for instance, the insurance company may still only make a partial claim payment. This “enough” insurance is determined at the time of the loss, so if you have not adjusted the value of your buildings in a while, you may be at risk.
The best way to determine the replacement value is to use your buildings’ appraisals to determine the proper building limit, or get advice from a local contractor familiar with your buildings. Most importantly, you should work with a trusted insurance agent who will regularly discuss property limits with you and review your current valuations.
Note that the market value of the campground has very little correlation with the replacement cost of the individual buildings. Market value typically has very little relevance when it comes to insurance.
The Merriam Insurance Agency recommends that you review the values of your buildings every winter, so that they can be verified every year. Contact us today to learn more or to speak with one of our KOA insurance experts.