Fire Departments, just like any other individual or business, invest in insurance to make certain that when a loss happens they can get back to business (in this case the business of saving lives and property) as quickly as possible. However, the type of insurance purchased for fire department apparatus makes a significant difference in how quickly and easily this process happens. And when the claim may include vehicles and specialized equipment that can cost a half a million dollars to replace, getting the best coverage for the best value is critical.
Insuring for the actual value means that there is a depreciation in the value of an item. For example, if a Class A pumper is purchased in 1980 for $300,000 but totaled in 2017 when it is only valued at $75,000, the insured amount would be the actual value (the lesser amount). However, since it is unlikely a functional replacement could be purchased for that $75,000, it could be problematic to have only Actual Value coverage.
REPLACEMENT COST VALUE
Replacement Cost Value is generally superior to Actual Value because it recognizes the need to purchase a replacement at current prices. With this type of coverage, Replacement Cost is usually the lesser of the following;
1.The cost of repair.
2.The cost to replace (with a comparable vehicle).
3.The amount actually spent to repair or replace the damaged vehicle.
With depreciation removed from the equation, this type of coverage makes it more likely that a department will emerge on the other side of a loss with their needs met.
However, there is also the possibility that if repair costs are close to, but slightly less than the cost to replace the apparatus, the LESSER of the two numbers will be dispersed. For example, if $350,000 would replace the pumper in the above example but $400,000 would completely replace it, you may rather have a new vehicle. With a Replacement Cost Value policy, you may not have the choice. You may also have to accept the most economical repairs and materials, rather than the higher quality ones your department would otherwise choose.
Purchasing Agreed Value coverage may solve those problems. In this type of policy you insure each apparatus for an agreed-upon value. When there is a claim, the insurance company disperses the lesser of the following;
1.The cost to replace with a new vehicle.
2.The agreed upon valuation.
In the scenario mentioned above, the department could have insured the vehicle for an agreed value of $400,000, knowing that would be the current cost to replace the vehicle, or an agreed value of $75,000, saving some money on premiums and planning to take the cash payout in case of loss.
Agreed Value coverage works best when the values are frequently adjusted during an annual review. It gets risky when the value of apparatus changes but the coverage doesn’t.
THE BEST VALUE